Short de facto relationships
We are in love – but when will I have to give him or her half of my property?
You are in a new relationship. You own the house that you are living in with your new partner, or you have other valuable assets. The question that then comes up is when will property be divided if you separate.
Before 3 years of living together I don’t have to do anything?!
It is only after the partners have lived together in a de facto relationship for more than 3 years that the relationship property will be equally divided. This does not unfortunately mean that you are “safe” until you reach the 3 year point.
As we explain below, the reason for this is that even if the de facto relationship lasts for less than 3 years, the Court can still make an order for the division of the relationship property if certain conditions are satisfied.
When can there be an order for division?
The requirements for an order for division are that the Court must be satisfied that:
There is a child of the de facto relationship or that the applicant has made a substantial contribution to the de facto relationship; and
The failure to make the order would result in serious injustice.
As to the two conditions for the making of an order, if there is a child of the de facto relationship born during the 3 year period then a Court will most likely find that there will be serious injustice if an order is not made.
For the substantial contribution option, in RLH v TMM [2015] NZHC 1050, Justice Mander held that the contribution by the applicant does not have to be out of the ordinary or far beyond the norm. It is sufficient if the contribution is substantial in the sense of being of real importance or value.
It seems from the case law that once a substantial contribution has been established that the Court will most likely find that it would result in serious injustice if an order is not made.
A contribution is not only financial, but most likely in these cases (except for the birth of a child) there will have to be a financial contribution to be successful. If there have been financial contributions, the Court will often find that both parties made equal non-financial contributions to the relationship. Every case will though be determined on the facts. Another factor is that in a short relationship there has not been much time for non-financial contributions to have built up in value.
How is the property divided?
If these conditions are satisfied, then the share in the relationship property is determined according to the contribution that each de facto partner made to the relationship.
In most situations, there is not usually a problem in dividing the property if the couple only has limited property, such as household chattels, their cars, KiwiSavers etc. In that situation they each keep what they brought into the relationship and there is usually no need for a financial adjustment.
The situation is however more complicated where there is a house that is owned by one of the partners and the other partner has made contributions to the property, such as mortgage repayments. Another variation is where the couple buys a house together, with the one partner contributing a greater share of the purchase price than the other partner.
In dividing the property, the correct approach is to add up all of the property that would be relationship property and then to work out the share contributed by each party. It is not just the direct financial contributions made by the party that are returned to the party, with the balance divided equally.
For example, one partner uses $200,000 of their funds to purchase a home for $400,000 with the balance funded by a mortgage, i.e. 50% of the purchase price. That property increases in value to $600,000. If the mortgage has remained at about $200,000 then after the mortgage has been repaid, there is equity of $400,000. At least $200,000 should be returned to the partner that put the money in and at least $100,000 of the profit made (50% of the profit) should go to that partner. For the remaining balance of $100,000 profit, there is a strong argument that most of that money should also go to the partner that put the money in for the purchase, with the other partner getting some compensation for their mortgage repayments and some of the profit as a proportion of their mortgage repayments. There is not an exact answer to this issue, because the courts use estimates or approximate numbers to work out the division.
Take action
Living together in a de facto relationship could have legal consequences even before the 3 year period has ended. This could be an unpleasant outcome for the party that contributes a greater share of the assets to the relationship. There is also considerable uncertainty and complexity in working out if the Court will make an order for division of the relationship property and if so the percentage that each party will receive.
It therefore makes sense to enter into a relationship property agreement, also known as a contracting out agreement, to agree on the separate property that will be kept as your and your partner's separate property and the property that will be shared as relationship property.
This is something that should be done earlier rather than until you are further into the 3 year period, because the more time that goes by and the more financial contributions are made, the more likely it is that a Court will make an order.
We can help
Our experienced team will be delighted to help you by giving you advice and representing you. Please contact us to make an appointment.
