Understanding the financial cost of a broken relationship

Broken heart with plaster-77“Yesterday is not ours to recover, but tomorrow is ours to win or lose”
Lyndon B Johnson

Relationship breakdown is a fact of life and it can be very costly unless the parties can amicably settle the asset division.  A relationship can be any one of the following: married couples, civil union couples or couples who live together in a de facto relationship.  When a couple has been in a relationship for three years or more, the assets held automatically become relationship property under the Property (Relationships) Act 1976 (the Act).  The Act deals with the division of property when couples separate or when one of them dies, and it can override the provisions of a deceased partner’s will.
However, a couple can choose to “contract out” of the Act and make their own property agreement.  They get to specify how their property will be divided.  In this case, each person must seek independent legal advice in order for the agreement to be valid.  If no agreement is made, then the Act will apply.
 
What is relationship property?

Things that have financial value, including debts, and are gained by either of you during or even before the relationship.  Excludes taonga or heirlooms.
 
How does the separation process work?

There is no need to do anything official when you separate from your partner.  However, a separation agreement, or separation order, helps to make things clear for both parties especially when there are children involved.
 
Are there exceptions to equally dividing property?

Property will not be divided equally if the court believes that to do so would be extremely unfair.  If there is likely to be a big difference in the finances between the parties when the relationship ends, the Family Court has the power to find a fairer solution.
By law, the Family Court must consider the interests of any dependent children when considering dividing relationship property.
 
What is separate property?

Assets owned independently before a relationship is considered separate property.  Separate property is not shared and remains the property of the person who owns it.  To protect your separate property, you and your partner need to agree on details together in writing and keep existing and new property separate from relationship property.
 
What are the options for dividing property?

The three options include:

1)    Private agreements (i.e. separation agreements);
2)    Using family dispute resolution;
3)    Using the family court.

The court process for dividing property involves:

1)    Making an application;
2)    Attending a judicial conference;
3)    Attending a settlement conference;
4)    Attending a hearing if one is necessary.
 
What happens about child support?

Child support is paid by parents who don’t live with their children, or who share care of their children with someone else. Child support is usually required when:

•    A couple with children split up;
•    Two people not living together have a child; or
•    The children don’t live with either parent.

The child support scheme operates under the Child Support Act 1991 and its purpose is to make sure that parents take financial responsibility for their children.
 
If the relationship is unsalvageable is it better to separate sooner or later?

This will depend on what is at stake – e.g.:

•    Are there children involved?
•    Are you both working or is one of you at home with the children?
•    Is there a business or trust in place?

A quick and easy exit is probably desirable to keep costs to a minimum.  If the relationship breakup is not amicable, there could be more legal costs involved as you work through the process of coming to an agreement you are both happy with.
 
When should lawyers be involved?

In the initial stage of separating, a lawyer will be able to help you freeze any joint accounts, take legal action if property is held in the partner’s name to prevent its sale before final property settlement, as well as separate any property held in both names.
If you and your partner are able to reach agreement on most things, you will save yourself time and money.
 
What happens to inheritances?

An inheritance remains separate property unless it has been mixed with relationship property at which point it is no longer considered separate property.
 
What happens with your KiwiSaver and other locked in superannuation funds – can they be withdrawn to pay the settlement?

Only the superannuation accrued during the relationship needs to be factored into the relationship property calculation.  This money gets factored into the ‘melting pot’ of relationship property and divided accordingly.  That is, compensation is made by adjusting the share of relationship property, by payment from the other partner’s separate property.
 
What happens if your money is in a family trust?

Whilst having your assets in a trust is usually a good idea, in many situations those assets are able to be pulled into the ‘melting pot’ and fought over if you separate.
The mere ownership of assets in a family trust is by no means a complete protection from claims by your future ex-partner.  
Fortunately, it is possible to prevent claims against a family trust by entering into a Property Agreement so that parties agree up front what is a fair outcome in the event of separation or the death of either party.