Moving to New Zealand? A cautionary tale:
Beware of New Zealand’s relationship property laws
By Colin Abernethy, Partner, Harmans Lawyers.
I purchased my house by myself, before our relationship. My ex-partner won’t get half, right? Wrong
Moving to a new country can be exciting but complicated. By the time a person has immigrated to New Zealand they have usually already jumped through a number of hoops (legal and practical) and likely won’t be thinking about what could happen to their assets if they find a wonderful kiwi companion to start a relationship with. Some may only discover what New Zealand’s relationship property laws can mean for their assets many years later, perhaps upon a relationship breakdown.
Generally speaking, under the New Zealand system, if you are in a qualifying de facto relationship, marriage or civil union of more than three years duration, the assets accumulated during the relationship will likely be divided equally should your relationship end (upon separation or death). Importantly, that includes the house in which you live regardless of who paid for it. In many cases that will be your most valuable asset.
The equal sharing provisions of New Zealand’s relationship property laws can surprise those who are from overseas jurisdictions which can operate on different principles. In some European countries only property acquired in joint names or property acquired during the relationship will be subject to equal division. Parties may need to enter into a contract with their partner to share individually owned property. That’s not the case in New Zealand, especially for the relationship home. Another surprise for newcomers to New Zealand may be to learn that the New Zealand Courts can also exercise power over movable property held overseas (such as bank accounts, pensions, and superannuation schemes). Newcomers to New Zealand need to be made aware of these potential traps in order to protect their assets, including both property purchased in NZ, and assets remaining overseas.
A recent local case study*:
Clementine[HD1] (aged 58) moved to Christchurch from Nice following the end of a lengthy marriage to her former French high school sweetheart and sale of their very successful IT company. She was well set up financially to start a peaceful early retirement in a new and exciting country on the other side of the world. Upon arriving in New Zealand, she purchased a house with wonderful ocean views, a car, a boat and invested funds in a small business which would help fund her perfect kiwi retirement. Whilst not looking for love, these things just happen, and before she knew it she had commenced a meaningful relationship with Jack, a 50 year old security guard and musician from Akaroa.
Apart from his guitars, Jack didn’t have a lot of assets, but that never bothered Clementine. He wasn’t materialistic and she had set herself up so well with her hard work during her life in France that she didn’t need to rely on anyone else. She could enjoy her early retirement.
Jack would work nights as a security guard and never really liked to discuss his finances, but Clementine respected his privacy and didn’t want to pry. Eventually the earthquakes rendered the Banks Peninsula house Jack was renting unliveable and so Clementine asked Jack to move in with her whilst he looked for a new place to stay. They decided they may as well dump all Jack’s old outdated furniture, Clementine’s house was full of new things anyway.
The relationship flourished, with their physical and emotional connection strengthening from the moment they moved in together. Clementine didn’t care Jack didn’t contribute much around her home, besides, he was busy working late, and focusing on writing and playing his music when he was home. Both Jack and Clementine loved sailing in Clementine’s boat, and taking trips around beautiful Aotearoa in Clementine’s luxury car. Clementine would never forget the joy on Jack’s face when she bought him the brand new Indian motorbike he’d always wanted.
She never asked Jack to pay for half of their holidays, she could afford it and he’d pay for the odd glass of wine from time to time. Jack said he’d start paying for trips away and expenses around the house once he’d got back on his feet, and Clementine knew him to be a man of his word. Clementine paid for Jack to complete further security guard training which would surely soon reap rewards for them both.
But as Clementine’s hard earned savings began to dwindle, so too did her confidence that Jack would start contributing towards their joint expenses. So one day, after nearly 3 years of living together in Clementine’s home, she decided to ask Jack to start paying something towards their living costs. And he did, $150.00 a week, but from that moment things were never really the same and before Clementine knew it the arguments about money turned into psychological abuse that she could no longer tolerate. After 4 years of Jack living in her home, Clementine’s kiwi romance was over and Jack moved out.
A year later
Notwithstanding Jack was always saying what’s mine is mine and what’s yours is yours - Clementine received a letter from his lawyer. A further 6months month later she was sitting in the Family Court room next to her own lawyer, with the Jack she thought she once knew sitting down the other end of the room with his lawyer. She had no idea how her great kiwi retirement had turned into this, a “Judicial Settlement Conference“ with the Judge saying, well Clementine - why didn’t you enter into a contract with Jack to protect your assets….a what?!
Jack had a $60,000.00 KiwiSaver Retirement Fund, a $30,000.00 motorbike (which Clementine paid for!!), and some worthless guitars. Turns out Jack always spent his money on himself, and his band. No savings in the bank, no prudent financial investments. The Judge said if Jack wanted to keep the assets he did have, he’d have to pay Clementine her half share being $45,000.00.
Clementine had her $900,000.00 house. Didn’t matter she purchased it before their relationship by herself, Judge said New Zealand law means it’s the “family home” and Jack gets half. Plus half the boat ($20,000.00), half the car ($40,000.00) maybe half her business depending on what the accounts say, and half the furniture….that‘s a payment to Jack of $510,000.00!, less what Jack owes her, leaving a final settlement payment to Jack of $465,000.00!
Is that fair? Jack’s lawyer says ignorance of the law is no defence, so pay up.
At her age the bank won’t lend Clementine $465,000.00. Her small business doesn’t generate enough income (it was never supposed to!!). So should she sell her dream kiwi retirement home overlooking the ocean? If she only sells her hard earned boat and nice car she still won’t have enough money…
Fortunately for Clementine, her story didn’t end there. There is the ability in New Zealand to argue that equal sharing would be repugnant to justice. If successfully argued, Jack might only get a 15% to 30% share of all the assets, not 50%. But it’s a very hard, expensive and stressful case to run, with a very high threshold to meet before a New Zealand Judge will depart from the usual 50/50 split.
How do you avoid all this?
Enter into a Relationship Property Agreement with your partner, setting out exactly what you both agree will happen to your assets if your relationship ends. If you follow the rules and complete the Agreement properly, a Judge will uphold your contract, and you will have the safety and certainty of knowing your financial future is secure, at a time when rebuilding significant assets for retirement can be virtually impossible.
Clementine could have secured her house, car, boat, business and furniture as her separate property, to ensure Jack wasn’t able to claim a half share.
“Pre-nup,”“Contracting Out Agreement,” “Relationship Property Agreement,” “s21 Agreement,” New Zealanders have any different names for the same relationship contract. If you don’t want to share your assets equally with your partner, then as your relationship is getting serious (and before you start living together in the same home) see a lawyer and enter into a contract with your partner. Don’t leave your assets to the mercy of the New Zealand Relationship Property laws, as those assets may well get cut in half.
*names and facts changed to protect privacy.