Equal division of property after a three year relationship – Is this fair?

At the time of marriage most couples intend to remain together until their death. Unfortunately, recent New Zealand statistics show that in the last quarter century about one-third of first marriages have ended within 25 years of the marriage.

In this country many marriages are second or even third or fourth marriages.  Many couples have also chosen to live together without getting married. Such relationships are known as de facto relationships.

It is not unusual for one or both of the couple to have amassed assets of significant value prior to marriage. The law in New Zealand provides that if a man and his wife decides to separate after being married for 3 years or longer each party shall be entitled to take with them 50% of the relationship property. This law of equal division of relationship property also applies to couples in de facto relationships who separate after living together for three years.

Not all properties owned by a married or de facto couple constitute relationship property but a substantial portion of their assets would be considered relationship property. Relationship property includes the family home the couple resided in during the relationship, the family chattels, all properties owned by the couple jointly and properties acquired by either couple after the marriage or de facto relationship began. It also includes properties acquired by either party before the marriage or relationship if the properties were acquired in contemplation of the marriage or relationship and with the intention that they were for common use.

Many affluent people in New Zealand have been transferring their properties to a family trust (which will be the topic for a later article) to protect themselves from relationship property claims from the less well off intended spouse or partner and for other reasons. Another common method of protecting a large portion of one’s substantial assets from being divided equally with a relatively short term spouse or partner if the marriage or relationship does not work out is to enter into a “Contracting Out Agreement.

The Property (Relationships) Act 1976 (“the Act”) allows a married couple or de facto partners to contract out of the equal division provisions of the Act. The Contracting Out Agreement can be entered into before the marriage or the de facto relationship or after the marriage or relationship has commenced.

In the Contracting Out Agreement, the parties can specify what they mutually agree to be properties that shall constitute relationship properties and their respective proportions. It can also set out the properties that shall be treated as separate properties of each individual spouse or partner. The Agreement may also deal with how debts incurred during the relationship and gifts to one party or inheritance by one party are to be treated.

When entering into a Contracting Out Agreement it is important to note that there are technical legal requirements that must be complied with. This Agreement must be signed by each party in front of his or her lawyer after each has taken legal advice from the two separate lawyers.  Each of the New Zealand lawyers who witnessed the signing of the Agreement must also certify on the Agreement that the effects and implications of the Agreement have been explained to the party who signed the Agreement. If these technical requirements were not complied with the Agreement can be challenged in a court of law in New Zealand and the Agreement can be judged to be invalid and of no effect.

In these modern times it is no longer the norm for marriages and relationships to last a life time. For those who are entering into new relationships in the later part of life when they have worked hard to accumulate significant assets it would be wise to consider entering into a Contracting Out Agreement or a family trust prior to embarking on a marriage or a de facto relationship.

Please note that the above information is intended to provide general information only. The contents contained in this article do not constitute legal advice and should not be relied on as such. For legal advice please contact our professional team at Forest Harrison.