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The Property (Relationships) Act 1976 (“The Act”) applies to partners seeking to divide their relationship property following the end of their marriage, civil union, or de facto relationship. This article provides a brief account of how the Act enables NZ Courts to categorise, value and divide property between individuals who have not been able to come to an agreement of their own.¹ Note that the information provided here is intended as a guide only. If more information is required in relation to a personal property dispute, the team at CODR may be able to help by providing more information.

 

What is the Property (Relationships) Act 1976?

The Act is a wide-ranging piece of legislation which sets out how property between partners is to be divided in the event of separation (by death or otherwise). The purpose of the Act is to provide the Family Court with a fair and objective framework to be used for the purpose of dividing relationship property between partners in disagreement. This framework is intended to recognise the equal and sometimes varying contributions made by both partners to the fruits of a past relationship, as well as to provide for the interests of children.

 

Who does the Act apply to?

The Act applies to all married couples, individuals in a civil union and people in a de facto relationship.

 

What is a de facto relationship?

A de facto relationship is a relationship between two individuals who “live together as a couple”. In judging whether a relationship is de facto or not the Court will have regard to:

  • The duration of the relationship;
  • The nature and extent of common residence;
  • Whether or not a sexual relationship exists;
  • The degree of financial dependence between the parties;
  • The kind of ownership, use and acquisition of property;
  • The degree of mutual commitment to a shared life;
  • The care and support of children;
  • The performance of household duties; and
  • The reputation and public aspects of the relationship.

Generally de facto relationships shorter than three years are not covered by the Act. The Court will only make orders concerning short de facto relationships if two specific requirements are met. First, the applicant must have either made:

  • a substantial contribution to the relationship; or
  • there must be a child of the relationship. For instance, a child of one of the partners, or even a child who was “a member of the family of the de facto partners”, at the time the couple ceased to live together.

Secondly, for a Court to make a ruling in relation to a short de facto relationship, the Court must be convinced that failing to do so would result in serious injustice, such that without Court intervention the resulting property arrangement would leave a contributing partner seriously disadvantaged.

Other kinds of de facto relationship not covered by the Act include:

  • Relationships ending before 1 February 2002; and
  • Relationships between people under 18 years.

 

What does the Act apply to?

The Act applies to any property owned by a partner.

“Property”, is broadly defined. Typical examples are the family home and chattels and businesses, but the term can also include, for example, rights or interests in relation to a trust, non-transferable licenses and insurance pay-outs. The value of the property in question is usually measured at the time of the Court hearing.

Also, an “owner” of property is also broadly defined as any person who is the beneficial owner of any property in law.

The Act is specifically worded to protect the rights of creditors. Therefore, any kind of agreement or transaction (involving relationship property) that intends to defeat the rights of a creditor, will be unsuccessful.

The way in which property owned by partners is to be divided (or the question of whether it is divided at all), depends on whether the property is classified by the Act as “relationship” or “separate” property.

 

What is the difference between relationship property and separate property?

The Act draws a distinction between relationship property and separate property. The term “relationship property” will usually include:

  • the family home, and family chattels (for instance family vehicles, furniture or other belongings used for family purposes) whenever acquired;
  • property owned jointly or in common by partners;
  • property acquired during the relationship, or in contemplation of the relationship and intended for common use or benefit (for instance, a wedding ring or engagement gifts);
  • sources of family income (such as family businesses or investments);
  • any increases in the value of relationship property, or any income derived from relationship property, or any proceeds from the sale of relationship property (for instance, the increased revenue of a family business, or income gained from the sale of a family car).

Property that is not relationship property is separate property. Separate property tends to include:

  • property acquired by gift, succession or survivorship (so long as it remains separate and is not mixed with relationship property);
  • property acquired as a beneficiary of a trust settled by a third party;
  • property acquired at a time when partners were not living together (for instance, after separation but before Court proceedings);
  • property acquired “out of” separate property, or the sale of separate property, or any increases in value of separate property (for instance, any income received from the sale of an inherited house).

Whether the property in question is classified by the Court as relationship property or separate property, will affect how the value of the property will (or will not be) divided.

 

How are these different kinds of property dealt with?

If property is classified as relationship property, partners are generally entitled to a half share of the property’s value. This general rule will only be departed from in certain limited circumstances, including if a relationship was of a short duration, or if failing to do so would result in an outcome that is repugnant to justice due to extraordinary circumstances.

On the other hand, if property is classified as separate property, it is not generally required to be shared with the non-owning partner. However, it is important to note that an increase in value of separate property can become relationship property if that increase was attributable to the “application of” relationship property, or the direct or indirect actions of the non-owning partner. For instance, a family business passed down from mother to daughter may be the separate property of the daughter. But if a partner becomes involved with the running of this business and increases its profits, the non-owning partner will have a claim to this increase in value under the Act.

 

Contracting out

The Act is an opt-out system. This means that if a couple have entered into an agreement which regulates the division of relationship property in the event of separation, this agreement is enforceable. In order to contract out of the PRA effectively, the following requirements (except in exceptional circumstances) must be met:

  • The agreement must be in writing and signed by both parties;
  • Each party to the agreement must have independent legal advice before signing the agreement;
  • The signature of each party to the agreement must be witnessed by a lawyer;
  • The lawyer who witnesses the signature of a party must certify that, before that party signed the agreement, the lawyer explained to that party the effect and implications of the agreement; and
  • The consequences of the agreement must not be extremely favourable to one party at the expense of the other.

 

For more information on out of court avenues to creating a legally enforceable relationship property agreement, see “Disputes over Relationship Property – Your Options”.

 

¹ For more information on solving relationship property disputes out of court click here.

Even a seemingly straight-forward dispute can often have many dimensions that reveal themselves once the resolution procedure begins. If you are interested in finding out more, please make an enquiry, or call 0800 CODR 00.