When it comes to love and property, the lines between “yours,” “mine,” and “ours” can quickly blur. Under the relationship property regime, couples in qualifying relationships may find that even assets held in one partner’s name—or in a trust or company—could be subject to equal sharing. Understanding how relationship property is classified, and how to protect what’s truly yours, is essential to safeguarding your financial future.

Understanding your entitlements

If you and your partner are in a qualifying relationship (broadly speaking that is a marriage, civil union, or a de facto relationship of three years or more (or two years if there is a child of the relationship)), then it’s likely you’ll each have acquired rights to certain property owned jointly and/or separately. In some cases, the rights can extend to property owned by a third party (i.e. a company or a trust) provided one of you has a beneficial interest in that property. The exception is if you have entered into a contracting out agreement (commonly known as a “pre-nup”).
It is important to understand how the Property (Relationships) Act 1976 (“the Act”) classifies property so that if your relationship ends (through separation or death) you are across what assets/ liabilities are considered “separate property” and what assets/ liabilities are considered “relationship property”. There is a presumption that all “relationship property” will be shared, however that presumption is subject to certain exceptions.

Relationship property vs separate property

Under the Act, relationship property includes:

• Assets acquired during the relationship;
• Income;
• Property used for the benefit of the relationship;
• Joint bank accounts;
• The family home, whenever acquired;
• The family chattels (household goods and items used for family purposes) whenever acquired, including vehicles;
• Kiwisaver and/or superannuation accumulated during the relationship;

In contrast, separate property is defined by the Act as:

• Property owned before the relationship started (except the family home and family chattels);
• Any increase in value from separate property;
• Gifts or inheritances received during the relationship and kept separate (for example, pre-relationship savings kept in your own account or an inherited real property not used as the family home); and
• Property clearly kept apart from joint or shared assets.

Can separate property become relationship property?

Yes. Separate property can lose its status as separate property and be deemed to be relationship property (in whole or in part) if:

• It is mixed with relationship property;
• It is used to improve or maintain relationship property;
• Relationship property is used to improve it; and/or
• It benefits the relationship in any way.

When this happens, that portion or property could be reclassified as relationship property and divided accordingly.

How do I protect my separate property from becoming relationship property?

It can be tall order trying to keep separate property separate whilst building a life together with your spouse or partner.

The best course for protecting your separate property is to enter into a contracting out agreement (i.e. a pre-nup) which sets out each party’s expectations to rights in property over the duration of the relationship. An agreement of this kind should clearly spell out what items of property are acknowledged to be the separate property of the parties, and what items of property are acknowledged to be relationship property (and equally shared). For a contracting out agreement to be enforceable, it must comply with certain requirements under the Act and be properly certified by a solicitor for each party.

In the absence of a contracting out agreement, another way to try to protect your separate property is to avoid intermingling your separate property assets with relationship property (and vice versa). Failing to do so could result in that separate property becoming relationship property. For example, if you use monies from an inheritance to renovate the family home, then those monies are unlikely to be recovered upon separation (unless ringfenced in a contracting out agreement). Alternatively, if you use your income to improve the value of a separate property asset (such as a collectible classic car owned prior to the relationship or a rental property owned by your trust) then that could give rise to a claim by your spouse to an interest in that asset or trust (unless ringfenced in a contracting out agreement).

What’s the takeaway?

The key to protecting your assets when you’re in a relationship is understanding and managing the classification of your property. It can be complicated where there are companies and /or trusts involved too.

If you want to safeguard your separate property or seek further clarity around how your property portfolio might be classified and whether it is at risk of the equal sharing regime, we recommend that you seek legal advice as early as possible to prevent costly disputes and protect your financial future.