When a marriage or de facto relationship ends, one of the most common sources of disagreement is deciding which assets should be shared and which should remain the property of one partner.
Under New Zealand law, the distinction between relationship property and separate property can have significant financial consequences.
The Property (Relationships) Act 1976 establishes the rules for classifying and dividing property when couples separate. Although the general principle is equal sharing of relationship property, not everything owned by either partner necessarily falls into that category.
What Is Relationship Property?
Relationship property generally includes assets acquired during the relationship, regardless of whose name appears on the ownership documents. It commonly includes the family home, household contents, vehicles, savings, investments and the portion of KiwiSaver entitlements accumulated during the relationship.
Importantly, the family home will generally be classified as relationship property even if one partner purchased it before the relationship began or it is registered solely in their name.
The usual starting point is that relationship property is divided equally, although exceptions can apply, particularly where relationships have lasted less than three years.
What Is Separate Property?
Separate property generally refers to assets that belong exclusively to one partner and are not subject to equal division.
Examples may include property owned before the relationship began, inheritances received from family members, gifts made specifically to one partner, and assets acquired using funds that have remained separate.
However, the circumstances surrounding how an asset was acquired, maintained and used can be more important than when it was purchased or whose name appears on the title.
When Separate Property Becomes Relationship Property
The classification of property can change during a relationship.
For example, a person might inherit money from a parent and deposit it into an account held solely in their name. If those funds remain separate, they may retain their classification as separate property.
However, if the inheritance is subsequently used to purchase or improve the family home, the money may lose its separate character.
Similarly, a rental property owned before the relationship might remain separate property, but an increase in its value attributable to relationship funds or the other partner’s contributions may be classified as relationship property.
These situations frequently give rise to disputes because the original source of an asset does not always determine its eventual classification.
Protecting Separate Property
Couples can enter into a contracting-out agreement, sometimes called a prenuptial agreement, specifying how particular assets will be treated if their relationship ends.
Such agreements can protect existing property, inheritances, business interests and other assets that the parties wish to keep separate.
To be legally effective, the agreement must comply with statutory requirements, including independent legal advice for each party.
Why Classification Matters
Before relationship property can be divided, it is necessary to establish precisely what belongs in the relationship property pool.
This may involve examining bank statements, property records, financial contributions, inheritances and the history of how particular assets were used.
Incorrectly classifying an asset can substantially affect the financial outcome of a separation.
Where significant assets, inheritances, businesses or property acquired before the relationship are involved, obtaining legal advice at an early stage can help clarify each party’s entitlements and reduce the likelihood of prolonged disputes.
This article provides general information only and is not a substitute for legal advice about your particular circumstances.