March 2024
Young couples are increasingly reliant on KiwiSaver withdrawals and the ‘bank of mum and dad’ to purchase a home.
But what happens if the relationship ends before three years? While it might be assumed that contributions to the purchase would be returned to the people that made them, it’s not a given.
Under the Property (Relationships) Act 1976 special rules apply to marriages, civil unions, and de facto relationships of less than three years when dividing property.
It’s not uncommon for one partner to contribute substantially more from KiwiSaver or savings when purchasing a home.
If you’re married or in a civil union and have contributed in a disproportionately greater way, owned the home prior, or inherited it during the relationship, on separation the home will be divided based on your contributions to the relationship.
If you’re in a de facto relationship and either have made a substantial contribution to the relationship or have a child together, and there would be serious injustice if a court did not make an order, your share in the home would also be based on your contributions to the relationship.
Contributions to a relationship can include both financial and non-financial such as care of children or dependants and managing the home. Balancing such diverse types of contributions can make dividing property a muddy exercise!
If you don’t want non-financial contributions to be factored in, you need to set out how you will divide the home in a contracting out agreement or a property sharing agreement with your partner.
A contracting out agreement requires you both to get independent legal advice, but makes it clear how the home should be divided on separation or death. A property sharing agreement doesn’t require separate lawyers but will be unenforceable after you have lived together for three years when the Act kicks in and the family home is subject to a 50/50 split.
It might be that you and your partner both withdraw your KiwiSaver savings but while your contributions differ, they aren’t substantially or disproportionately different.
In this situation, if you’re married or in a civil union your home would be divided equally.
In a de facto relationship without children or substantial contributions you would be treated as co-owners under the Property Law Act 2007. A court can consider many factors as well as fairness (equity) – for example, that the ‘beneficial ownership’ of the property was always intended to align with the actual financial contributions made, regardless of what’s registered on the title. However, this wide range of considerations can lead to a variety of outcomes.
The only way to give yourself certainty as to your financial position and save on legal fees down the track, is to enter into a contracting out agreement.
As a parent, it’s important that your contribution to your child and their partner’s purchase is recorded in writing as a loan. Without anything to the contrary, your contribution could otherwise be treated as a gift to them both and on separation they would both benefit. If recorded as a loan, on separation you could demand repayment and keep or reapply those funds to benefit your child in the future.
If you have questions or concerns after reading this article about how the law applies to your relationship now or in the future, please contact your lawyer. It may be that entering into an agreement contracting out of the Act, known as a ‘contracting out agreement’ or ‘prenup’ is right for you. This is a written agreement on how to divide your property on separation and/or death. These agreements are the only binding way of dividing relationship property outside of the Act without the assistance of the court. You can sign this at any point in your relationship – whether that’s six months or six years.