Relationship Property

By | September 17, 2013

Relationship Property without being complicated

You probably think of the Property (Relationships) Act 1976 (the PRA) as legislation that will determine your relationship property after you separate from your spouse, de facto or civil union partner. You may be surprised to know, however, that it also governs what happens to your property when you die. It can also be used by you when you’re starting a relationship as part of your estate planning, a possible separation and to protect your assets for your children.

Many of the principles that apply to the division of your relationship property if you separate will also apply when you die. Having robust structures are important because your separate property and inheritances can very easily become relationship property or unintentionally pass to your spouse or partner. The division of assets becomes more complex where you, or you and your partner, have family trusts created either before or after the start of your relationship or marriage. On some occasions these trusts can be attacked, and in other circumstances they cannot. This may create an outcome that wasn’t contemplated by you when you originally established them.

The other major issue that may arise is where your relationship property and/or pre-relationship property intermingle with relationship property. An example of this could be using funds from a pre-relationship inheritance to invest in a bach for which the upkeep is paid from joint funds. If you don’t have good paperwork and organisation, what you planned to remain separate for yourself or for your children may be lost to your relationship partner or your partner’s children rather than your own.

You may also own a family home or chattels which are separate property and not held in a trust; these may become relationship property after your relationship passes the three year mark.

Do some planning

Sorting all this logically may seem daunting; we have some practical steps to help.

  1. Have a current Will that reflects who you want to benefit from your estate. Think carefully about choosing your executors and trustees to ensure you have a balance for both the protection of your spouse or partner, and also for your children. You may want to think about naming an independent executor/trustee who has no benefit from your Will.
  2. Draft a Memorandum, or Letter, of Wishes to go with your Will or with your family trust giving clear directions or wishes to your trustees as to what you want them to consider and what you want to be binding on them. This could range from a list of who you want your precious belongings to go to, or it could be how to decide what to allow the children to have before they are old enough to inherit outright.
  3. Contract out of the PRA: Enter into a section 21 agreement under the PRA setting out what is to happen if your marriage or relationship ends, and also what should happen when one of you dies. This will also be helpful if you have become mentally incapable and any attorney you have appointed may not have the power to do anything about it.
  4. Tenants in common: Own your house as ‘tenants in common in shares’ so that if one of you dies your house is held in trust for the survivor for a number of years or for life. On your spouse or partner’s death, your share of the house passes to your children or family. You may also want to think about holding other investments as tenants in common in shares. A tenancy in common arrangement won’t, however, give you any specific advantage in a separation situation.
  5. Establish a family trust to protect your assets: The timing for this is crucial. You should do this:
    • Before you enter into a relationship or marriage
    • Before or after you enter into a relationship or marriage,and you receive any significant gifts or inheritances, or
    • After the commencement of your relationship or marriage, and by agreement with your spouse or partner, to deal with specific assets.
  6. Establish a joint trust or parallel trusts with your spouse or partner: this will allow you to provide for each other when you die, but reserves future or shared benefits to your children.
  7. Establish Enduring Powers of Attorney for Property and Personal Care and Welfare in case you become mentally incapable. This will ensure you have an attorney to make decisions on your behalf and will make sure that your known wishes are carried out.

Whether you are in your first or subsequent relationship or marriage, you should seriously consider these straightforward steps that will help protect your assets not only for yourself, but also for your children or family.

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Copyright, NZ LAW Limited. Editor: Adrienne Olsen. E-mail: Ph: 029 286 3650.