Relationships Later in Life

Given New Zealand’s ever increasing divorce rates how can you protect your property against a Property (Relationships) Act claim, when entering into 2nd, 3rd or subsequent relationships later in life? Whilst younger people entering into a first time relationship, usually have less and lower valued assets (and sometimes greater debt), people entering into subsequent relationships later in life, represent a special demographic with unique legal needs. Such parties often hold higher value assets/debts and may also have children from a previous relationship(s).

So What Are The Property (Relationships) Act Rules?

If you are a couple (i.e. de facto, married or living in a civil union relationship) for at least a three year period (known as a “qualifying” relationship”), the Property (Relationships) Act will apply. Should your relationship later come to an end, due to either separation or the death of one or both parties, the property acquired during the relationship will be divided equally. In contrast, property acquired prior to the commencement of the relationship will typically remain the separate property of the party who owns it – except for the family home which will automatically be treated as “relationship property” regardless of when it was acquired, which will be subject to division under the Act.

Unless a pre-nuptial Agreement or Contracting Out Agreement is entered into between the parties to identify what assets/liabilities the parties agree will remain their respective separate or relationship property, the equal sharing provisions of the Property (Relationships) Act can have very serious and often unintended financial implications. Such implications later in life, can involve the risk of having to find sufficient funds (and/or having to sell off hard earned assets) to pay out a half share of such assets to an ex partner, or to the representatives of your ex partner’s estate.

Take The Following Example:

Jack and Jill meet and fall in love. They marry and have 3 children. They separate 12 years later. Jill pays Jack out for his half share of their relationship property assets, with Jill retaining their family home as part of their settlement. Some 4 years later, Jill enters into a new relationship with James. No pre-nuptial or Contracting Out Agreement is entered into by the parties before or after James moves into Jill’s home, to live with her and the children from Jill’s previous relationship, despite Jill having always intended to leave the family home as a legacy to her 3 children. A further 5 years goes by, then sadly Jill unexpectedly passes away.

Can James make a claim against Jill’s estate, for a half share of the family home where they resided together? Yes James could make a claim against Jill’s estate. If his claim succeeded, James would likely be awarded a 50% share of the value of the family home, leaving Jill’s surviving children to receive the remaining 50% share of the family home between them. This could happen regardless of whether or not, Jill leaves provision for James in her Will because after Jill passes away, under section 61 of the Property (Relationships) Act, James is able to elect either option A or B. Such provisions allow James to elect to inherit whatver Jill may have made provision for him in her Will, or James could elect to make an application for division of property under the Act – whichever way it’s up to James to decide. Alternatively, if James passed away then the same options would apply to Jill in relation to James’ estate.

Should Jill and James both pass away, or if James passed away shortly after Jill, then each of their representatives could still pursue a claim on behalf of their respective estates, with such proceedings usually costing significant legal fees and delays before their estates would be finalised and assets distributed.

Lessons To Learn?

Had Jill and James entered into a pre nuptial (or Contracting Out Agreement) such an agreement would specifically record what each of them wished to retain as their separate property and what property would be divided as relationship property (usually equally) under the Property (Relationships) Act. To be valid, such an agreement needs to comply with the requirements as set out in the Act including:

a)The Agreement must be in writing;

b)Both parties must sign the Agreement;

c)Each of the parties’ signatures must be witnessed by a lawyer; and

d)Each of the parties must receive independent legal advice.

Note – such an Agreement can be put in place at any time before, during or after the relationship becomes subject to the qualifying provisions of the Property (Relationships) Act. Once signed and certified by two independent lawyers, such an Agreement takes effect immediately. Prior to living with a new partner for a 3 year period (and just in case one partner who may own lower valued assets then refuses to enter into a Contracting Out Agreement), it’s very wise to take sound legal advice and enter into a formal Agreement well before your relationship becomes subject to the Act. If you need assistance please contact one of the team at Ward Adams Bryan-Lamb. Solicitors on (03) 218 2833.