Hope for the Best, Prepare for the Worst – Understanding Relationship Property 

You’ve probably heard that there are three versions of the truth – her version; his version and somewhere in between. Nobody wants to end up feeling hard done by after a breakdown in a relationship, or like you were taken to the cleaners by your ex. While this kind of thing may happen, it doesn’t have to be that way.

The legal position regarding the division of assets following a relationship breakdown isn’t common knowledge and as a result, people often fail to take adequate measures at the right time to protect themselves and their assets. There are also those who know the rules but just stick their heads in the sand and do nothing with the ‘she’ll be right’ attitude. It’s definitely better (and a lot cheaper) to be properly prepared for an unfortunate situation than it is to clean up the mess afterwards.

In the case of failed relationships, the legal position is pretty simple really – if your relationship has endured for more than 3 years and there is any breakdown, the property of the relationship is generally to be divided 50/50. It doesn’t matter whether the relationship property is owned jointly by the couple or one person exclusively. However there are some exceptions to that general rule, for example:

Inheritances & 3^rd Party Gifts

Inheritances & 3^rd party gifts are regarded as separate property and are protected from any relationship property claim.

This sounds simple but if the inherited/gifted property is used for the benefit of the relationship (eg. applied in some way towards the family home or to buy a shared car) it loses that separate property status and becomes relationship property. So, in practical terms, we find that most inheritances & 3^rd party gifts lose their separate property status and protection, thus making it very vulnerable in the event of a relationship breakdown.

Property acquired before the commencement of the relationship

Property acquired before the commencement of the relationship is regarded as separate property and is protected from any relationship property claim.

Again, this looks fair and reasonable. However, like inheritances & 3^rd party gifts, if used for the benefit of the relationship (eg. the assets/income of a pre-relationship business investment that is applied towards the shared relationship lifestyle; or a pre-relationship property that is used as the shared family home), it loses that separate property status and becomes relationship property. In practice, we find that most pre-relationship property loses its separate property status and protection very early on in the relationship.

‘Contracting Out’ Agreement

‘Contracting Out’ Agreements are very powerful and effective wealth protection devices. They are the most secure way of protecting inheritances, 3^rd party gifts and pre-relationship property from a relationship property claim.

A ‘Contracting Out’ Agreement specifically defines each partner’s separate property and protects that property in the event of a breakdown of the relationship. To ensure the agreement is valid and enforceable, both parties are required to have obtained independent legal advice before entering into it and each party’s lawyer is required to endorse a certificate to that effect on the agreement.

If you are in or about to enter into a relationship, then you should very seriously consider a ‘Contracting Out’ Agreement if any of the following factors apply to you:

• You have been in a previous failed relationship;
• You bring substantially more wealth to the relationship;
• You expect to receive a substantial third party gift or inheritance;
• You have children from a previous relationship; or
• You have an interest in a third party trust, partnership or company.

We know this can be a sensitive issue and we know that the natural, positive response is to say that the relationship is fine and it’s never going to become an issue, but statistically one half of all New Zealand marriages end in divorce. The longer you leave it, the less likely you will be able to encourage and convince your partner to enter into and execute a ‘Contracting Out’ Agreement.

If you really do want to protect your family inheritances, gifts and pre-relationship property, the only way to effectively do this is by way of a ‘Contracting Out’ Agreement – the sooner the better!

Knowledge and taking action at the right time is the key. Now that you know how to most effectively protect yourself and your assets from a relationship property claim, don’t just stick your head in the sand!

Wakefields Lawyers are wealth protection specialists; give us a call or send us an email today to learn more about how we can help you effectively secure your assets.

Still not convinced it’s worth it? Check out our Relationship Property Agreement pricing brochure here.