New Zealand: Property & relationships: Risks in quake generosity

Last Updated: 7 October 2013
Article by Richard Lang

We all know someone whose home can't be lived in following the Christchurch earthquakes. In many cases, displaced people have been relying on the good nature of their friends, family, or current partner to put a roof over their heads.

If you have taken in someone you're in a relationship with – even if it isn't that serious - it is hard to believe that your generosity could backfire in the future. But you should be aware that if you don't take the time to look after your own interests now, there may come a time when you end up losing out because of the impact of the law on your new living arrangements.

Take Suzy, for instance, in this fictitious yet possible scenario.

Suzy was very well placed. She had been working hard for a number of years and had built up considerable equity in her own home. She was sitting pretty. In mid 2010 she met Mark and they began a relationship. To be honest it was an on again, off again sort of relationship, but it was something to fill the long winter evenings.

Mark was a bit of a late bloomer. He was just starting out on his first job following university and was enjoying earning a few bucks and flatting in the city.

Then on 4 September 2010 it all came tumbling down and Mark had no place to live. Although the relationship wasn't super serious, given his situation, Suzy let Mark move in with her until he could find something more permanent.

As happens though, the living together was the thing that became more permanent. Mark paid rent which relieved Suzy's mortgage payments. He also helped with maintenance around the house and garden so she wasn't complaining about that either! And he was quite the cook. Eight months, and another major earthquake later, the arrangement was still working.

If we could fast forward three years and show Suzy her relationship coming to a stormy end, do you think she would be so happy? Not only would her relationship be at an end, but by law Mark could possibly leave the relationship with half of the hard earned equity in Suzy's home - and half the chattels. He was still paying off his student loan so saved very little in three years but he would be entitled to half of the money which Suzy saved during their relationship.

The Property (Relationships) Act 1976 sets out how property is to be divided when a relationship ends and the starting point for de facto, married, or civil union couples who have lived together for three years (and shorter periods of time in certain circumstances) is that each party has contributed equally to the relationship and so should be entitled to share equally in the property of the relationship on separation.

It should be kept in mind that this does not just mean financial contributions. For example, while Suzy may consider Mark's gardening, maintenance and repair of the property a simple fact of helping out, Mark may have an argument that he had, in fact, maintained and increased the value of the house. If Mark did all the shopping and cooking it may be because he was a very good cook. However, he could argue that he was managing the household which enabled Suzy to concentrate on other things.

Quite the minefield, isn't it? So what do you do if you are in Suzy's position?

The effect of the Property (Relationships) Act can be circumvented by entering into a 'Contracting Out Agreement' which will allow the parties to decide in advance how their property will be divided if they separate. Each party is required to obtain independent legal advice so that they know what they are signing.

Had Suzy asked Mark to sign a Contracting Out Agreement before taking him in, she could have put her home, chattels, debts and savings into the 'Separate Property' category so that when he moved out, he would only be entitled to take those items which he brought into the relationship.

The people that are in a serious relationship have probably thought about the implications of the law before moving in together. However in extreme circumstances like the earthquake, decisions like this don't always get thought through quite as carefully, and that is where the issues can arise.

The Act does not apply to a flatting situation so you need not be concerned if you are merely taking a friend in need into the home you own and you have no hint of a relationship beyond friendship. However, if your friendship progresses beyond that point, then you should consider entering into a Contracting Out Agreement to make it clear that what's yours is yours and what's theirs is theirs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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