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Most people who have been through a separation would agree that it is a difficult and stressful time. This can be exacerbated when there is confusion or misunderstanding about what property is classed as relationship property and what property is classed as separate property. The Property (Relationships) Act 1976 (“the Act”) provides a code for how property is to be divided on separation for couples who are married, in a civil union partnership or de facto/same sex relationship.
Most clients are aware of what is sometimes described as the “three year rule”. This, in many cases, means that most, if not all of their property, will be divided equally between them upon separation if their relationship has lasted three years or longer. As the Act states in section 1C(3) “In general, the couple’s property is to be divided equally between the couple". Similarly, in section 11(1) the Act states “On the division of relationship property under this Act, each of the spouses or partners is entitled to share equally in – (a) the family home; and (b) the family chattels; and (c) any other relationship property.” There are of course some specific exceptions to this rule such as where there are extraordinary circumstances, economic disparity or both parties owned homes at the beginning of the relationship and only one is now subject to equal sharing.
Many people assume that on separation they have to give up or divide property when in fact they do not, and other clients assume that property that they will actually have to divide remains solely theirs. The purpose of this article is to dispel some of these common misconceptions and give you an overview of the general principles of the legislation.
The discussion below is premised on the assumption that the parties have been in a relationship for a minimum of three years and that there are no issues regarding the duration of the relationship and that there are no extraordinary circumstances in existence. The discussion is also premised on the assumption that no Contracting Out or Pre-Nuptial Agreement has been entered into by the parties.
The family home is relationship property (unless it is on Maori land) regardless of whether one party owned it prior to the commencement of the relationship and regardless of what financial contributions each party made to the property during the relationship. When the family home is owned by a Family Trust prior to the commencement of a relationship, the property does not form part of the relationship property pool as it is not owned by either of the parties. However, if one party transfers the family home into a Family Trust during the relationship, with the effect that the other party’s relationship property claim is defeated, the Court can order compensation to be paid to the party whose claim has been defeated. As well, any debt owed by the Trust to the party who transferred the asset can also be classified as relationship property or subject to an order under the Act.
Family chattels are defined in section 2 of the Act. They include household furniture and appliances, ornaments, tools and garden equipment and pets. It also includes motor vehicles, caravans, trailers and boats (including their accessories) used wholly or principally for family purposes. For example, the car that is used by one partner to take the children to school, drive to the supermarket etc will be treated as a family chattel, whereas a vehicle used by one partner (which was purchased before the relationship began) to compete in motor racing but which is not used at any other time by either partner would not be considered relationship property. There may be chattels that are not obviously in one category or the other (i.e. relationship or separate property) – for example a car that was used both for racing but also for taking the family on holiday. In that case an analysis of what the vehicle was principally used for would be required.
Also excluded from the definition of family chattels are those chattels used wholly or principally for business purposes, money or securities for money (shares for example), heirlooms and taonga.
Relationship property is defined in section 8 and includes (in addition to the family home and family chattels):
Of course, if the parties have entered into a Contracting Out or Pre-Nuptial Agreement pursuant to Part 6 of the Act, assets that would otherwise be treated as relationship property upon separation can be redefined as separate property.
Separate property is defined in section 9 as “All property of either spouse or partner that is not relationship property.” Specifically separate property includes:
There are a number of situations where one partner’s separate property will become relationship property and which therefore form exceptions to sections 9 and 10 above. These are as follows:
The discussion above is very much an overview of the provisions of the Act and is not intended to replace face to face legal advice with your family lawyer as there are inevitably grey areas that will require further analysis. McVeagh Fleming has an experienced family law team who can guide you through the process of dividing property after separation including providing you with expert advice on separation agreements. We can also advise you on how to protect assets at the commencement of or during a relationship/marriage through contracting out agreements and Trust structures.
Our Family Law Teams are based in our North Harbour and Auckland Offices, and comprise Alissa Bell and Anna Carbon at the North Harbour Office and Peter Fuscic and Jacqueline Dale at our Auckland Office. We welcome your relationship property and general family law enquiries.
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© McVeagh Fleming 2011
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.
