Untangling Assets After A Separation.
Separating from a partner with whom you share assets, can be complicated. Having the right legal documentation in place from the start of your de facto relationship can help to simplify the process.
This scenario offers an example of one possible outcome…
Frank and Beth had been having a rough time in their marriage for some time. But things came to a head over the Christmas period. Towards the end of January after some counselling, they decided to go their separate ways.
They managed to sort out the care arrangements for their two young children themselves and thought that they could also agree to the separation of their assets. They owned their family home jointly. There was a mortgage on the property to a major bank and Beth’s parents’ trust had also lent them some money when they first purchased the house.
Beth was the major breadwinner in the family. When they had kids, they had agreed that Beth would go back to work in her role as an Ear, Nose and Throat specialist, working both privately and in the public system. Frank had left his job as a chartered accountant to stay home with the children until they started school and was now working part time in a local business as an accountant.
Beth and Frank agreed to sell the house, pay back Beth’s parents and the bank, and split the difference.
Everything was amicable and then a friend told them that in order to make the agreement legally binding, they both had to seek their own legal advice.
Beth went to see a lawyer whom a friend had recommended. The lawyer advised her that it would be unlikely that Frank’s lawyer would agree to the agreement that they had come to for a number of reasons. Firstly, the loan to Beth’s parents’ trust hadn’t been documented. Beth’s lawyer said that while the usual legal presumption was that unless money had been gifted, it was presumed to be a loan, in family situations it was the reverse. The Courts had ruled that there was a presumption that unless documented as a loan, money advanced by parents was a gift. This could mean that Frank may disagree to pay back Beth’s parents’ trust and instead take half of what the trust had lent them.
Even though Beth and Frank had agreed that it was the best thing for the family for Beth to continue working and for Frank to stay home with the children, the lawyer explained that Frank could claim compensation for that. This is because Frank would be financially worse off as a result of staying at home and not being able to progress his career as Beth had been able to.
Lastly, Beth’s lawyer advised her that her KiwiSaver and all other savings would be relationship property and that they should be divided 50/50. Beth’s KiwiSaver was obviously far greater than Frank’s as she had kept working and he had been out of the workforce for at least 7 years.
Beth thought about all of these things and went to meet with Frank prepared for some push back on what they had already agreed.
Frank had received the same advice that Beth’s lawyer thought he would. However, despite the advice he was keen to stick as much to their original plan as possible. He was in total agreement that the funds from Beth’s parents’ trust were a loan and should be paid back. He understood the economic disparity position but said to Beth that it was something that they had both agreed to and he didn’t think it would take him long to re-build his career. He did think though, that it was only fair that he take half of Beth’s KiwiSaver, and she agreed with that.
Beth and Frank managed to have the amicable split and separation of their assets that they had intended to have. However, not all relationships finish on such a positive note. While it is good to sort things out as much as possible by yourselves, getting good legal advice early on can save time, money, and angst further down the track.
If you are helping children into property, it is important that this is correctly documented to protect your funds. While in this case, Frank was reasonable and happy to agree to the un-documented agreement, not everyone is as amenable as Frank. Legal advice is essential in these circumstances.
If you feel you could use some specialist advice, don’t hesitate to contact the Trusts & Wealth Protection Team.
