Ex Files: Separate Property and Relationship Property

When couples have been living in a de facto relationship (or have been married or have been in a civil union) for more than three years, and then decide to separate, the division of their property will need to be resolved. The couple will need to identify what assets could be classed as relationship property and what assets are separate property.

Relationship property is defined in general as follows:

• The family home (whether acquired before or during their relationship);
• The family chattels (which will generally be considered jointly owned property); 
• Property owned immediately before the relationship began;
• Property that was acquired in contemplation of the relationship; 
• Property intended for the common use or common benefit of both of the partners in their relationship;  
• All property acquired after the relationship began (unless the property has been put in a trust, been gifted to one of the parties or inherited by one of the parties);
• The increase in value of separate property if that increase can be attributed to the other party through the use of relationship property (whether directly or indirectly).

Separate property is defined as any property that is not relationship property. When a couple separates, it is required that each person receives their own independent legal advice.  A lawyer will be able to assist the parties in deciding how to classify their assets and liabilities, including making a decision on whether the property they own should be classified as separate property or relationship property.  Property that is classified as relationship property is subject to the equal sharing provisions contained in the Property (Relationships) Act 1976 (“the Act”).

Situations where separate property becomes relationship property

There are situations where separate property becomes relationship property, and this is covered by section 9A of the Act. The approach of the Courts has been that if the non-owning partner contributes to any increase in the value of the other person’s separate property, then that increase in value is deemed to be relationship property and should be shared equally. A case dealing with section 9A is Rose v Rose.

The main facts are as follows:

• Mr and Mrs Rose were in a relationship for 25 years, from 1978 to 2003.
• When Mr Rose met Mrs Rose, he was the sole owner of a farm property named “Cloverley”.
• Mr Rose farmed Cloverley with two others during the relationship and inherited another farm property named “Poplars” when his father died.
• Throughout the course of their relationship, the partnership between Mr Rose and the other farming partners carried on with a successful wine-making business on both Cloverley and Poplars farms. 

Because Mr Rose clearly owned Cloverley when the relationship began and because he inherited his interest in Poplars, that was deemed separate property.  The issue that was argued in Court was whether Mrs Rose was entitled to claim a share in the increase in value of Cloverley and Poplars, her claim being based on section 9A of the Act.

Mrs Rose’s lawyer argued that during the course of their relationship, Mrs Rose’s outside earnings, combined with her being the homemaker, enabled Mr Rose to retain the farm and develop it into a vineyard.  During the relationship, the farms had appreciated in value significantly. Mrs Rose’s lawyer focused on her contributions and argued that her contributions had indirectly increased the value of Mr Rose’s separate property.

The contributions that can increase the value of separate property do not have to be financial contributions. Looking after the family home or bringing up children are deemed to be contributions that the Court takes into account when determining values for any division.

The Court accepted Mrs Rose’s arguments and stated that she was entitled to a 40% share of the increase in value of Mr Rose’s separate property.  Mr Rose was given a 60% share giving him greater credit for the general increase of the land and inflation.

Contracting Out Agreement

Had Mr and Mrs Rose entered into a Contracting Out Agreement (also known as a pre-nuptial agreement) then this case wouldn’t have arisen. A Contracting Out Agreement is the safest way to ensure that separate property doesn’t become relationship property.

If you would like to discuss a Contracting Out Agreement, please use our free 30-minute consultation and book a time with Shannon or email shannon@corelegal.co.nz.