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How to challenge the equal division of your relationship property

When you separate, your relationship property assets are equally divided.

This is in the Property (Relationships) Act 1976 (“The Act”). To familiarise yourself with the fundamentals of the Act, refer to our article here

S 11 of the Act states that each spouse is entitled to equal shares in the:

  • Family Home
  • Family Chattels (e.g. furniture, boat, and dog)
  • And any other classified relationship property

The above would apply if you have no contracting out or separation agreement. However, there are exemptions to the equal division assumption, such as:

  • Extraordinary circumstances that make equal sharing “repugnant to justice”;
  • A short marriage;
  • A short de facto relationship;
  • Economic disparity between the spouse after separation;
  • Two homes that qualify as the family home;
  • One spouse sustained or diminished the value of another spouse’s separate property; and
  • One spouse satisfied personal debts out of relationship property.

Extraordinary Circumstances

The Courts may find that equal sharing would create extreme injustice.

In cases like these, the courts will divide relationship property according to the contributions made by each spouse.

Here are some examples of extraordinary circumstances that are “repugnant to justice”:

  • Wife financially and emotionally supported the family and the husband was an alcoholic;
  • Wife financially supported and provided everything in the marriage, took care of the child and provided the funds for her husband for further studies. His earning capacity was greatly enhanced during this relationship as she was more established.

Factors that courts will consider when assessing exceptions

  • Was there a gross disparity of contributions during the relationship
  • The length of the relationship. The general rule is, the longer the relationship has been the more intermingled property becomes
  • Was there any negative contribution such as one spouse acting in fraud, deceit or forgery towards their spouse.
  • Gross misconduct of a spouse. This could include someone who is very abusive and they damaged the property in question

Factors courts will not consider

  • The circumstances after the spouses cease to live together. For example, if one spouse after separation assumes the responsibility of maintaining the house and paying for its outgoings. Or if one spouse deserts the family and fails to maintain for them
  • If one party owns the family home, this is not “extraordinary”.

Marriages of short duration

This is when spouses have lived together for less than three years. The division of property would be to each spouse’s contributions to the marriage if the assets were:

  • Wholly owned or substantially by one partner; or
  • Assets owned by one spouse through succession, survivorship, as a beneficiary, or as a gift; or
  • One spouse contributed to the marriage disproportionately than the other.

Any other property or assets that fall outside of the above will be dealt with by the equal division rule.

De Facto Relationships of Short Duration

If there has been a de facto relationship of short duration where the de facto partners have lived together for less than three years or the court deems it to be a de facto relationship of short duration, then the Act will not apply. The exception to this would be if:

  • There is a child in the de facto relationship
  • One spouse has made a significant contribution to the de facto relationship

Each share will be determined according to individual contributions.

Economic Disparity  

This section applies if the courts decide:

  • After the relationship ends, the income of one spouse is likely to be higher; or
  • One spouse was better off due to their role during the relationship.

Factors that courts may have regard to when drawing this conclusion:

  • The likely earning capacity of each spouse
  • The responsibilities of each spouse for the ongoing care of children
  • Projected earnings of one spouse if they had scarified a career for the relationship
  • The enhanced earning capacity of one spouse because of their respective roles in the relationship
  • The age of each spouse

Two homes at the date when marriage or de facto relationship began

This applies during a relationship when each spouse owns a home that could be the family home. The courts will adjust the shares to relationship property to compensate for the inclusion of the home of only 1 spouse. This resolves any injustice that may have resulted.

As a result, this section is usually relevant for second marriages or ones that occur later in life where each spouse may own thier own house.

Sustained or diminished value of separate property

Sustenance is when one spouse’s property has been maintained by relationship property.

Large amounts of cases under this exception are related to farms. An example is where one spouse owns a farm that is separate property, but the non-owning spouse maintains the farm.

A Court will award compensation or displace equal sharing for this. But calculations in the past for this has been quite conservative.

Diminution is where separate property has been “materially diminished” in value by the one spouse’s actions. Courts may decide to diminish the shares of the other spouse as compensation.

Personal Debt satisfied out of Relationship Property

If one spouse satisfies their debts from the relationship property, the other may be compensated either by:

  • A greater share in relationship property; or
  • Some of the other spouse’s separate property is treated as relationship property; or
  • An order for one spouse to pay the other.

Talk to one of the CODR team today to see whether your situation fits one of the above.

This article was written by Ashley Yuan.

Challenging trust property owned by one partner

What are trusts and how do they apply to relationship property?

Firstly, even if you established the Trust, but your partner contributed to the assets, the Trust will not necessarily be separate property. This is true even if a third party established the Trust.

To clarify, this means that Trusts are not an absolute protection against relationship property. This will be determined using the standard test in relationship property laws.

Certainly a partner will have no interest in a trust unless you are a beneficiary of the trust or the trustees have given you a legal interest in the trust.

In other words, if you and or your partner have a vested or contingent interest in a trust, that interest will be sufficient to qualify as property under relationship property laws.

Relationship property laws make provision for some possible claims by the non-owning partner against these interests. So even if a distribution is classified as being your separate property, this may not necessarily protect you from claims.

If you are unsure whether you or your partner has a legal interest in the trust, talk to a lawyer. Alternatively, contact CODR and we may be able to help.

How does the current law deal with trusts?

At the moment, it is clear that simply owning assets in a trust is not an absolute bar from claims. However, if a trust is involved the Family Court has limited jurisdiction, and can refer matters to the High Court. But this can be an expensive and time-consuming process.

The law expressly allows for the trust-owned house to be included in some situations, such as:

  • If the house was transferred to the trust when the couple were in a relationship;
  • Even if the property was already in a family trust before the relationship commenced, if a loan is secured over the property and a partner made repayments;
  • If one party contributed to the “improvement” of the home, then they may have an ability to claim against the trust.

In addition, there may be other situations in which a Trust does not separate your property from relationship property.

What is changing?

In 2019, the Law Commission will suggest reforms to the relationship property laws in New Zealand which have not changed for over 40 years. In terms of trust, this may include allowing the Court to have wider powers with regard to the sharing of trust property.

Therefore, before entering into a relationship, entering into a relationship property agreement recording the manner in which you seek to have your property divided in the event of separation, will be important.