In life, we seek to protect ourselves against unknowns by insuring the likes of our homes, cars and income. While we hope never to have to claim on such insurance policies, it provides peace of mind and a degree of financial security to have the cover in place.

With a generational shift showing people entering relationships and/or marrying later and a move towards financial independence creating the ability for a person to acquire assets on their own prior to entering a relationship, it seems logical that people would also seek to protect themselves against unknowns in a relationship.  

We appreciate that when someone is in a happy relationship, the last thing on their mind is "what happens if we separate, or my partner passes away?". However, having an agreement in place confirming what will be separate property of each partner and how parties will divide relationship property can save a lot of stress and provide partners with certainty.

Under New Zealand law, specifically the Property (Relationships) Act 1976 (the Act), the presumption is that if a couple (whether married, de facto or civil union) in a qualifying relationship separates, their assets (called "relationship property", which is described below) are split equally. However, by putting in place a relationship property agreement (sometimes called a "contracting out agreement" and colloquially called a "prenup"), parties can contract out of that presumption and decide for themselves who will retain certain assets and/or how their assets will be divided.   Agreements can also make provision for non-divisible assets like pets and cars. As well as separation, an agreement can also be used as an asset planning tool to provide certainty when one partner passes away. This can be particularly useful where parties have children from previous relationships.

What is a qualifying relationship?

The Act sets out what constitutes a qualifying relationship, namely couples who are married, in a civil union or in a de facto relationship for three years or longer.

A de facto relationship is generally described as being a couple, both aged 18 or over, who live together as a couple and are not married. When determining whether a de facto relationship exists, all circumstances of that relationship are considered including but not limited to:

• duration of the relationship;
• nature and extent of common residence;
• degree of financial dependence;
• ownership of property;
• degree of mutual commitment to a shared life;
• care and support of children;
• how household duties are performed; and
• how friends and family perceive the relationship.

It is possible that parties may be in a de facto relationship even if they do not live together or have not yet been in a relationship for three years, if they are committed to each other in a way recognised by the Act.

If a relationship is not qualifying under the Act, the general position is that each party is entitled to the assets they owned at the start of the relationship. However, it pays to be aware of circumstances that may result in a change to that position e.g. if either party has dependent children living with them.

When should you get a relationship property agreement?

Relationship property agreements can be entered into at any time during a relationship. That said, it’s sensible to sort things out earlier in the relationship before assets become more intertwined and before the relationship achieves three years' duration – which is when the presumption of equal sharing automatically applies. That way, rather than adding a potential complication of attempting to overturn the presumption, the agreement can focus on clearly setting out the intentions of the parties , which may change overtime as the relationship evolves and the agreement is reviewed (see our comments below).

What counts as relationship property?

"Relationship property" includes just about any assets you and your partner/spouse acquire or use during your relationship. This includes:

• the home that you both live in, and all the furniture and chattels in it (even if the home is owned solely by one party and was acquired by them before the relationship even began);
• all income earned during the relationship;
• property and assets bought or acquired during or in contemplation of the relationship, like houses, cars and furniture, and also shares and/or interests in a business;
• the proportionate value of any life insurance policy, superannuation or KiwiSaver earned during the relationship.

What does not count as relationship property?

Generally, property that a party receives from a third party, such as an inheritance, a gift or as a beneficiary of a trust settled by a third party (e.g. that partner's/spouse's  parents) are considered to be a party's separate property. However, separate property can lose its 'separate property' status if it is intermingled with relationship property. A common example of intermingling would be for one party to receive an inheritance and use that inheritance to pay-off (or pay-down) the mortgage over the home that both parties live in.

What about trust property?

While rights and interests in a family trust can be ring fenced, as if it were separate property, in an agreement, it is important to note that the agreement is between partners and does not involve the trustees of a trust.

It is also worth noting that having property in a trust doesn't necessarily protect it from a claim if you separate. If a person sets up a trust or transfers assets into it during or in contemplation of a relationship, those assets could be subject to a claim on separation. If a person is looking to set up a trust or even transfer assets to an existing trust in light of a relationship, legal advice should first be sought.

Only as good as its last review

For an agreement to remain relevant and enforceable, it needs to reflect what is fair between the parties (which may change and evolve over time). Regularly reviewing (and updating if/as required) your agreement every 3-5 years or sooner if a significant life event occurs such as marriage, the birth of child, a change in career or career break of a partner, or when a partner acquires significant assets such as a gift or distribution from a trust, helps to ensure the agreement is enforceable on separation or when one party dies.

Do I need a lawyer to get a relationship property agreement?

Yes. An agreement requires careful drafting and legal advice to ensure the agreed arrangement is fair and will be enforceable. If the Court finds that an agreement is "seriously unjust", it can be set aside.  

For this reason, to make it legally binding, the agreement must be certified by independent lawyers for each party. This means both you and your partner/spouse will need separate legal advice before signing.  

If you are concerned to protect your assets if you separate or you want to clarify what happens with your property when you pass, a contracting out agreement might be right for you. Contact our experienced team to discuss your concerns. They can guide you through the process and help you safeguard your assets with confidence.

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