Jeremy Sutton: What happens to the property when couples split?

Divorce and relationship splits can cause financial headaches and disputes as property and assets are divided

When couples separate after being together for more than three years, usually the law requires their relationship property be divided equally between each party.

Some property is deemed separate property, not relationship property, so is not shared between the couple.

The exceptions are:

Superannuation – Only superannuation earned during the relationship is divided equally.  In many cases, superannuation is earned before the relationship and that portion of it is separate property.  

Inheritances – Inheritances from a family member – kept separate – remains that person’s separate property.  Often the person receiving the inheritance uses that sum to pay off the joint mortgage of the parties.  In that case, normally the inheritance is converted from being the individual’s separate property to being relationship property. 

Debts –The student loan is a common example.  If the debt has been incurred before the relationship, that debt is usually the party’s separate debt and not a relationship debt.

Property owned before marriage or before the relationship commenced – There are many cases in which family trusts are involved and owned by one party, and property accompanying the trust is owned by one party well before the relationship.  In some cases, compensation may be payable to the individual who moved into the family home occupied by the other party and owned by the family trust.  That might occur if there is a reasonable expectation that they would get some interest in the property.  Further, they have made a direct or indirect financial contribution.

These are complicated cases that normally can be challenging for the individuals and the lawyers.

Prenuptial agreement – If there is an agreement that is going to ringfence certain property, then that may be separate property. But such agreements can be challenged in limited circumstances and become less valid over time.  This is especially the case if people’s circumstances change, for example, if children have been born, or expectations of the parties are different.

Section 15 economic disparity – An award of compensation under Section 15 of the Property (Relationships) Act 1976 may be made. This happens if the Court can be convinced at the end of the relationship the income and the living standards of one partner are likely to be significantly higher than the other, as a result of divisions and functions within the relationship.  Claims tend to be more likely to be successful where the income of one party is high, i.e. $200k or more per annum, and their work hours demanding. On the other hand, often the other party has a modest income, and has been looking after young children at home for some period.  

Other factors that can influence the matter include the age, health and individual choice of each party to pursue a career or not.  A common situation is where one party has remained at home to care for children, while the other pursues a successful career. The end result could be that the disadvantaged party receives more than 50 per cent of the total pool of relationship property. The issue of economic disparity frequently arises in our practice, however, very few cases make it to the New Zealand Courts.