Relationship Property (also known as Matrimonial Property)
Property (Relationships) Act 1976
This Act sets out a regime for division of property for certain domestic relationships. It was previously called the Matrimonial Property Act 1976 but the name was changed when the Act was extended to apply to defacto relationships. It now also includes civil unions.
The word ‘property’ does not just mean a house but includes chattels, motor vehicles, boats, bank accounts, superannuation funds, share portfolios, business interests etc.
The regime set out by the Act has a number of twists and turns with exceptions and exceptions to the exceptions. Anybody contemplating dividing their property or who has assets and wishes to protect them before entering into a relationship, even people who are in relationships and inherit money or are planning major asset acquisitions should seek legal advice.
The Act divides property in two sorts: relationship property and separate property. Separate property is property that is not relationship property and has not become relationship property.
The family home and chattels are generally relationship property regardless of which party owns them even if they owned them prior to the relationship (it can make a difference if the property is owned by someone else e.g. a trust or in some circumstances a company).
Joint property and property acquired by either party during the course of a relationship is often relationship property although there are exceptions.
Whether other assets are or become relationship property depend on when they were acquired, how they were acquired, and the use to which they are put. For example money inherited by one party is usually separate property but if that money is used to pay off the mortgage on the family home it usually becomes relationship property.
Some sorts of property are treated differently, for example superannuation contributed to during the relationship is included but only that part of the value that accrued during the course of the relationship is relationship property.
Determining what is and is not relationship property requires a close analysis of both the property and the circumstances of the relationship.
Does the Act apply?
Whether the Act applies and when it applies depends on the type of relationship.
Married or Civil Union
The Act applies straight away.
The division of property usually depends on a party’s contributions to the relationship (which are not limited to just financial contributions) if the marriage or civil union is less than 3 years. In determining the length of the marriage any previous defacto relationship is taken into account.
After three years relationship property is usually divided equally.
De facto Relationship
For the purposes of the Act, a de facto relationship is a relationship between 2 persons (regardless of the gender mix)-
(a) who are both aged 18 years or older; and
(b) who live together as a couple; and
(c) who are not married to, or in a civil union with, one another.
In determining whether 2 persons live together as a couple, all the circumstances of the relationship are to be taken into account, including other factors that are relevant in a particular case. Examples of other factors that may be relevant may include such things as the duration of the relationship, the ownership, use, and acquisition of property, the degree of mutual commitment to a shared life and so on.
The Act does not usually apply to defacto relationships until after 3 years have elapsed. Prior to that time any property is divided on the same basis that it was before the Act applied to defacto relationships e.g. the family home belongs to the person who owns it unless the person claiming an interest can establish some sort of claim whether by way of implied trust, an agreement, or otherwise.
The application of the 3-year time limit whether to marriages, civil unions, or defacto relationships is not a strict rule and there are circumstances where the time period can be reduced or extended by the Court.
Contracting out or Prenup Agreement
It is open to people to enter into agreements determining how their property is to be divided, essentially they can ‘contract out’ of the Act. There is a great deal of flexibility and people can decide for instance whether they contract out in respect of all their property or just some of it. They can also decide what circumstances affect the way property is treated e.g. the family home becoming relationship property after a defined longer period or the agreement coming to an end should children be born.
Most commonly people enter into these agreements when they already own assets and they commence a new relationship.
This is not a situation where a ‘do it yourself’ agreement will suffice. The Act sets out strict requirements around these agreements. They must be in writing and each party must have independent legal advice. The lawyer who witnesses the document must also certify that they have advised the person of the effect and implications of the agreement.
Division of Relationship or Matrimonial Property
People usually keep their separate property but sometimes that property can be used to compensate the other person.
Relationship property, in the majority of situations, is divided equally unless there are extraordinary circumstances in which equal sharing would be repugnant to justice.
There a number of exception to this, for instance where a marriage or civil union is less than 3 years, or where there is an economic disparity between the parties when they separate. This latter situation can arise where one party’s income earning ability has been interrupted because they cared for the children and they can no longer earn what they would have. In the mean time the other party has continued to progress in their career and leaves the relationship with a higher income than the other. There are also other circumstances in which economic disparity might apply.
From a practical perspective often one party will purchase the other’s interest in one or more items of relationship property, particularly if one party wants to retain the family home or business.
Ordinarily people take legal advice when they begin resolving their property issues and usually everything is able to be resolved by negotiation and agreement. If agreement cannot be reached an application can be made to the Court. Even in this instance the Court will try to encourage the parties to settle their differences but if this fails, the Court will make the decision.
The Court also has other options such as allowing one party to remain in the family home for a period of time or settling property on children. The Court can also award compensation to one party e.g. where they have helped improve or maintain the value of the other’s separate property.
The Court also has power to interfere with transfers of property to trusts and companies in certain circumstances and make orders for compensation.
Dissolution (Sometimes Called Divorce)
Whilst property and other issues are usually resolved at separation, Marriages and Civil Unions cannot usually be formally dissolved until the parties have been separated for 2 years.
Death of a spouse or partner
There are different rules in the Act which provide for the situation where one spouse or partner dies. The survivor must elect whether to claim under the Act or accept what is provided for them in the deceased's Will. This election has a time limit and advice should be sought.
Other factors need to be considered when relationships come to an end. Child-care arrangements, child support and spousal maintenance are some of the main ones. People need to also reconsider their Wills as their former husband or wife will continue to benefit under their existing Will until their marriage is dissolved or a separation order is made.
This is a very brief outline of the complexity that can surround property divisions and seeking legal advice at an early stage is essential for an equitable division of property.
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Capital Law, Lawyers, Level 5, Petherick Tower, 38-42 Waring Taylor Street, PO Box 500, Wellington, New Zealand
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