Posted by Clinton Light on May 30 2017
One of you or both of you have decided to separate
This is a brief explanation of your legal position in respect of your property. I will address the topic of children in a future article.
To keep the explanation simple, I am going to assume that the relationship has lasted at least three years – different rules apply when the relationship has lasted less than three years.
The steps are:
The separation date (when the couple stops living like a couple) is used to “freeze” the property owned and debts on a particular day to work out what are relationship property and relationship debts.
Property bought after separation is usually not relationship property. For example, buying a car after the relationship has ended. If money from the relationship is used, then the money is relationship property but not the car.
Relationship property or separate property?
Relationship property is usually property that is the product of the relationship.
Some important exceptions are the family home and family chattels. One of the couple may have owned items that fall into this category before the relationship began, but the family home and family chattels are always relationship property.
Other common examples of relationship property are income earned, property bought during the relationship, and KiwiSaver schemes. The fact that income is relationship property means that savings accounts, investments, shares etc. even if in only the name of one person are most likely relationship property.
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 I 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.
As a general rule, if the parties had little when they began the relationship 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.
Separate property includes inheritances and gifts from others, including from a trust; heirlooms and taonga; and property owned before the relationship. Separate property also includes the proceeds of separate property, e.g. a house is sold and another bought with the proceeds.
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.
Value of relationship property
Once we know what is relationship property, then we work out the value. My approach is to focus on the more valuable property first and work down the list to the least valuable property. It usually doesn’t make sense to waste a client’s money by lengthy arguments over items that don’t have much value.
For most people their most valuable asset is their home. Usually, the property is sold to someone else or transferred to one of the parties. In the latter case, the value is agreed between the parties, with or without a registered valuation.
For most other assets, e.g. cars and other chattels, the value is the second hand value, or what I refer to as the “Trade Me” value. What was paid for the asset, unless recently bought secondhand, is usually irrelevant.
Debts are either relationship debts or personal debts.
The practical difference between the two kinds of debts is that a relationship debt is paid out of relationship property before the net relationship property is divided. With a personal debt, only the person that incurred the debt is liable for it.
Relationship debts are usually debts that are connected to the joint relationship, e.g. household purchases, a mortgage loan for the family home, a bank loan to purchase a car etc.
As the name implies, a personal debt is personal to the partner. Examples of personal debts are a mortgage loan for a house owned before the relationship began or personal expenditure on a joint account after the relationship ended.
Post-separation adjustments are used to compensate for either a benefit enjoyed out of the relationship property or for contributions to the relationship property after separation.
A common example of a post-separation contribution is that one partner moves out of the family home and the other partner remains. The partner that has moved out continues to pay the mortgage, rates and insurance for the family home, with or without a contribution from the partner in the house. Depending on the circumstances, the partner in the house may have received a benefit, i.e. cheaper “rent”, while the person out of the house also has to pay rent. All things being equal, this can be unfair and the Act has a mechanism to equalize up the payments made. Nevertheless, this is usually not a precise calculation but instead a broad brush approach to give some compensation to the party who is out of pocket.
Relationship property agreement
After there is agreement, you enter into a written agreement with your partner to agree how the relationship property will be divided. This is a full and final settlement of all disputes. A lawyer for each of you witnesses the agreement and explains the meaning and effect of it. The lawyers must be independent of each other, in other words, they cannot be in the same firm.
The end of a relationship can be a difficult time. We will be delighted to assist you to make it as stress free as we can.