Posted by Clinton Light on November 29 2017
Why is the difference important?
It is important to take into account that even though property may be in the name of only one of the partners, that property could be relationship property and could therefore be divided between the partners on separation or death.
Relationship property is usually property that is the product of the relationship. It always includes the family home and family chattels.
Other common examples of relationship property are property bought during the relationship and KiwiSaver schemes.
In the case of KiwiSaver schemes, only the contributions (employee and employer) and increase/loss in value during the relationship are relationship property. KiwiSaver only began in 2007, so in most cases that we deal with all of the KiwiSaver amount is relationship property. In the future, it will be more important to calculate the amount that is actually due to the relationship.
Any income received during the relationship is also usually relationship property. This means that savings accounts, investments, shares etc. acquired during the relationship are most likely relationship property. This property is relationship property even though the property may only be in the one partner’s name.
Separate property includes property owned before the relationship, inheritances and gifts from others, including from a trust; heirlooms and taonga. Separate property also includes the proceeds of separate property, e.g. a house that is separate property is sold and another house is bought with the proceeds.
Separate property becomes relationship property
Property usually loses its status as separate property if the parties mix separate property with relationship property. A good example, and one that comes up quite often, is using money from, say, an inheritance, to pay off some of the mortgage.
A situation that we often see is where the couple lives in a home that was owned by one of them, before the relationship began. The home where a couple lives is the family home and the family home is always relationship property. The separate property has therefore lost its status as separate property and has become relationship property.
As a general rule, if the couple did not own much when their relationship began and the relationship has lasted a reasonable time, it is quite likely that most or all of the property will be relationship property. It’s still worthwhile checking to see if any of the property could be separate property.
If the relationship lasts at least three years, the relationship property will usually be divided equally. The person that owned the family home before the relationship began will have in effect lost half of the net equity in the property.
To avoid this situation, the couple should consider entering into a contracting out agreement. The couple can specify the property that they each want to keep as their separate property. If the relationship ends by separation or by death, then they keep their separate property and the relationship property is divided equally.
If you would like to discuss your situation, please contact:
Clinton Light, Associate at Young Hunter
Steph Gifford, Associate at Young Hunter