Understanding Relationship Property: Mac & Abi's Journey.

Abi owned her own home, and they were spending so much time together it seemed (unromantically) the most economic thing to do. Abi had bought the house using her Kiwisaver and an inheritance she had received from her grandmother. She also had a mortgage which she was managing on her own, but it would be nice to receive some rent from Mac to assist with the re-payments.

Abi’s parents were keen for her to protect her house in case she and Mac split up. While they liked Mac and knew Abi felt Mac was the person she wanted to spend the rest of her life with, they had heard horror stories from their friends whose children had moved in with their partners and then had to split assets 50/50 when they separated later. They suggested that Abi go and see their lawyer to set up a trust for her to transfer the property to.

Abi went to see the lawyer who explained that as she and Mac were already in a de facto relationship, despite the fact it had been less than three years, it was too late to set up a trust. Any transfer of relationship property to a trust during a relationship would not protect the asset. The lawyer also explained that even if Abi had set up a trust prior to the relationship, she would still recommend that Abi enter into a Contracting Out Agreement (like a pre-nup) to absolutely protect the property. She said that otherwise any contribution that Mac made whether financially or other could be considered a contribution to the property and he could have a claim.

Abi was surprised to learn that even though she owned all the property before she had even met Mac, it would be considered their family home when he moved in, and he could have a claim even on the bit that she had prior to the relationship. She was more surprised to learn that even the time they hadn’t been living together full time could possibly count as being the three years required to have a qualifying relationship under the law. She had thought that the time would only run from when they started permanently living together. The lawyer said that many people got caught thinking they weren’t in a proper de facto relationship, when in the eyes of the law, they were.

Abi learned what other assets would also be relationship property, including income and any Kiwisaver accumulated during the relationship. Mac had a well-paying job and got regular bonuses – those bonuses and of course his income would also be relationship property, so Abi thought it may be in Mac’s best interests to enter into a Contracting Out Agreement as well. Inheritance and gifts from third parties (eg distributions from her parents’ trust) would be separate property, provided that they were kept separate. Putting those assets into a joint bank account or using inherited funds to pay off relationship debt (eg paying some money off the mortgage on the family home) was enough to mix any separate property with relationship property and it wouldn’t be able to be considered separate anymore without a Contracting Out Agreement.

The other important point was that the right to 50% of relationship property was not only upon separation, but also in the event that one party died. So, without the agreement, if Abi died, Mac would have a claim to 50% of her house, regardless of what her Will said.

All of this sounded like a difficult thing to raise with Mac, but the lawyer told Abi that Contracting Out Agreements were very common these days and most people understood the reasons behind them. She said that it was much easier to discuss it earlier on in the relationship and it could be more difficult to raise as time went on.