Buying a house together is one of the most significant milestones in any young couple’s relationship. During this exciting time, the idea of a relationship breakdown or death might be the furthest thing from your mind, but it’s important to ensure that you’re prepared for the possibility of either of these situations from a legal perspective.
These days, couples tend to buy property together when they are slightly older and financially independent, which sometimes means that one partner is contributing a more substantial amount to the purchase. In addition, one or both sets of parents are often providing financial assistance towards the property purchase. These factors can create legal complications, as one partner (or their parents) may wish to recover their fair share of the property’s value after a separation or death.
Therefore, if you are purchasing a property with your partner or spouse, it’s crucial to consider how the property would be dealt with if your relationship ended or if one of you passed away.
What will happen to our property if we separate?
Generally speaking, the ‘family home’ is automatically categorised as relationship property under the Property (Relationships) Act (also known as the Relationship Property Act), regardless of the contributions each person has made towards the purchase. If the property is sold after a separation, in most circumstances this means that the net proceeds of the sale will be shared equally between the two partners.
Can we prevent the property from being divided equally after a separation?
It is very uncommon that both partners have contributed the same amount to the property purchase. For example, one person often contributes more from their KiwiSaver account, separate savings or through family assistance. In these situations, couples would often prefer that the value of the property is not divided equally in the event of a separation.
If this is the case, it may be appropriate to enter into a relationship property agreement before purchasing the property together. The agreement would record the following:
- What will happen to the property if you separate (for example, you might decide that one party has the first right to purchase the other’s share, the other has the second right and if neither exercises this right then the property is sold on the open market)
- How the proceeds would be distributed after the sale of the property (e.g. you might choose for both parties to receive their initial contributions back and the balance to be split equally between the two parties)
What happens to the property when one of us dies?
The first thing to bear in mind is that there are two different ways to own a property as a couple:
- Joint tenants – you own the property together in your joint names. If one of you dies, the other person automatically becomes the sole owner by survivorship, irrespective of what your will specifies
- Tenants in common – you own the property in shares (either 50/50 or unequal shares – for example, in accordance with the proportion of funds you have each contributed to the purchase). If one partner passes away, their share in the property is dealt with according to their will (or in accordance with the Administration Act if they don’t have a will)
If you choose to own the property as tenants in common, it is important to ensure that your will deals with this scenario appropriately. For example, if one partner passes away and the other is not the sole beneficiary of their will, this could make for an uncomfortable situation where the surviving partner is living in a property that is now owned in part by their deceased partner’s family.
For couples with a tenants in common ownership, we recommend the following:
- Each partner allows in their wills a limited period of time where the other partner can remain living in the property and the property is not distributed to the beneficiaries of the will during this time; and
- The couple enters into an agreement which records what is to happen when this period expires (for example, you might decide that the surviving partner would be given the option to buy out the deceased person’s estate and that if this is not possible then the property would be sold).
If I have a will, does this protect my assets from a relationship property claim?
Unfortunately, your will does not always dictate how your estate is dealt with.
In most circumstances, a relationship falls under the equal sharing regime of the Relationship Property Act after a duration of three years. If you are in a qualifying relationship, according to the Relationship Property Act, then your partner has the option to either take what they are entitled to under your will or choose to take their entitlement under the Relationship Property Act.
Therefore, if you wish to protect your home from a relationship property claim and ensure that your assets are distributed according to your will, you will need to enter into a relationship property agreement with your partner or spouse recording this.
This article is brief and general in nature. You should not treat this article as legal advice and should seek professional advice before taking any action in relation to the matters dealt with in this article. Armstrong Murray accepts no liability for losses suffered by any person or organisation who may rely directly or indirectly on this article.