Property (Relationships) Act 1976 – the Equal Sharing Principle
The Property (Relationships) Act 1976 (“the Act”) applies automatically to married and de facto couples, and couples in a civil union.
It is important to be aware of the general principles of the Act as it governs entitlement to the assets of a relationship in the event of separation (unless a valid Agreement has been entered into during the relationship which has the effect of “contracting out” of certain provisions of the Act).
Equal Sharing Principle
Assuming there is no binding Contracting Out Agreement put in place, the default position under the Act will apply.
The overarching principle contained in the Act, and the general rule that you may have heard of, is that following the end of a qualifying relationship (being a marriage, civil union or de facto relationship of at least three years, with some exceptions) all relationship property will be divided equally between the parties.
The Act also applies an equal division regime in respect of relationship debts.
It is important to be aware of the general principles of the Act as it governs entitlement to the assets of a relationship in the event of separation (unless a valid Agreement has been entered into during the relationship which has the effect of “contracting out” of certain provisions of the Act).
The definition of relationship property under the Act is relatively broad, and it covers more than some may realise at the outset.
By way of example, relationship property includes the family home and chattels (whenever acquired), all common and jointly owned property, all income earned during the relationship, any increase in the value of Kiwisaver and other superannuation accounts during the course of the relationship, and all property purchased after the relationship began.
Separate property on the other hand is not subject to the equal sharing principle, and instead is generally able to be retained by the relevant party. Separate property is any property that does not fit under the definition of relationship property and includes, by way of example, inheritances and property acquired before the relationship began.
It is important to note however that separate property can become relationship property (and therefore fall under the equal sharing regime) if it becomes intermingled with relationship property.
A classic example of this is where one party to a relationship receives an inheritance, cash gift from parents, or funds from a Family Trust, and applies it towards the purchase of a family home, or towards repayment of joint bank debt owed on the family home.
The equity in the property resulting from that purchase or repayment will typically become relationship property to which the equal sharing regime applies.
It is not always a straightforward exercise to classify assets as either relationship property or separate property, and the outcome will always depend on your particular circumstances.
In the event that a qualifying relationship comes to an end (whether by reason of separation or death), each party (or that party’s estate) will typically retain a half-share of the assets that have been established as relationship property (following the equal sharing principle) together with their respective separate property.
Start Date
Determining the start date of a qualifying de facto relationship will also determine the point at which a person is or will be affected by the equal sharing rules. That determination is therefore a key step when considering a Contracting Out Agreement or if your potentially qualifying relationship is ending. The date a couple is married or enters a civil union can be a clear and easy start date to refer to when considering if a qualifying relationship exists.
However, if the couple were in a qualifying de facto relationship prior to the marriage or civil union then that qualifying de facto period will be taken into account in determining the total length of the qualifying relationship.
The assessment to determine when a qualifying de facto relationship starts is highly fact-based: there is no single ‘bright line’ rule that is easily applied.
Importantly, the date that a couple begin living in the same home together is not necessarily the start date of their qualifying relationship.
There are a series of factors that a court would look at to determine the start date:
- the duration of the relationship:
- the nature and extent of common residence:
- whether or not a sexual relationship exists:
- the degree of financial dependence or interdependence, and any arrangements for financial support, between the parties:
- the 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:
- the reputation and public aspects of the relationship.
Although each potentially qualifying relationship involves a different mix of these factors and will therefore need individual consideration to determine the likely start date, there are a few general themes to be aware of:
- The moment when you first meet your de facto partner is unlikely to be the start date of your qualifying relationship with them, even if that moment occurred on a ‘first date’.
- As mentioned, the date you move into the same home as your de facto partner is not necessarily the start date of your qualifying relationship with them, but it can be an important factor.
- Your de facto relationship can still be a qualifying de facto relationship even if you have never lived in the same home as your partner, if there are sufficient other factors that justify a finding of a qualifying relationship.
Short Duration Relationships
If one party to the relationship has contributed disproportionately more to the relationship than the other, the equal sharing principle may not apply in that instance either. In those instances, typically the division of the couple’s assets is on the basis of their respective contributions.
If a couple is married or in a civil union for less than three years including any prior de facto relationship then, on separation, the equal sharing principle may not apply to some assets of the relationship. For couples in de facto relationships of less than three years who have a child together, or in other limited circumstances, the court can order a division of relationship property on the basis of financial and non-financial contributions to the relationship if it is satisfied that not making those orders would result in serious injustice.
Conclusion
If you would like more information on the provisions of the Act and/or advice as to how the Act will apply to your circumstances (whether you are going through a separation currently or you want to know about protecting your assets in a relationship), please get in touch with one of the team and we would be pleased to help.
If you are separating, we can assist you with the separation process including advising you on your position and putting in place a suitable Separation Agreement to deal with the division of assets.
If you are currently in a relationship and you do not want the default provisions of the Act to apply, we can assist you with putting in place a Contracting Out Agreement between you and your partner which can set out the arrangements for division of your assets in the scenario where the relationship comes to an end.
Although ‘serious injustice’ is a high bar to meet and one that would take careful consideration of the evidence before applying, if it is met the court could make orders about dividing relationship property that either or both parties to the relationship are not happy with or were not expecting. Entering into a binding Contracting Out Agreement early on is the best strategy to avoid that outcome.
Scams & Fraudulent Transactions
The banks are finally rolling out a “Confirmation of Payee” check when you make a payment. This means that when you enter a new payee’s bank account number you can verify the account number to ensure that the name matches the bank account number. This check is currently available in personal accounts but over the next few months it will be available in business bank accounts.
Gault Mitchell Law has always had a policy of not paying funds into a bank account where the number has been received via email.
All accounts are verified by a phone call to the client by the acting solicitor – this way we can ensure that we are talking to the correct person.
Scammers go to extraordinary lengths to gain your trust by setting up false websites and diverting phone numbers – always double check before pushing send!
Happy Easter!
Happy Easter from everyone at Gault Mitchell Law!
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