Do we Need a Relationship Property Agreement?
First home buyers have many difficult issues to consider. With what seems to be an forever rising housing market, on top of increasing restrictions on the banks’ ability to lend to low equity purchasers, there’s no doubt the New Zealand dream of home ownership is becoming harder to achieve. One issue which may not be at the forefront of your mind when buying your first house is relationship property. The Property (Relationships) Act 1976 (“Act”) applies to marriages, civil unions, and de facto relationships generally when the relationship has been 3 years or longer.
Normally any house owned by one or both jointly in a relationship, which is used as the family home (whether or not it was acquired before or after the relationship began), is considered relationship property. The net value of that relationship asset will be divided equally if the relationship ends even if there are significant disparity in the monetary contributions to that property.
Home buyers must consider what each party expects to get back from the house if the relationship ends (whether by death or by separation). If there is a disparity in each party’s contribution towards the house, a relationship property agreement should be considered or put in place (often referred to a “prenup” or “section 21” agreement).
The agreement records your decision to opt out of particular provision in the Act. It can record which assets are retained as that partner’s separate property. Kiwisaver or other superannuation funds, one party’s contributions towards the house, gifts from one party’s parents or distributions from one party’s family trust are a few examples of property which might be recorded as separate in such agreements. It must be noted that the court has discretion to overturn some or all of the provisions of an agreement, in some circumstances, if the provisions are substantially unfair to one party – this is particularly the case if a significant amount of time has passed since an agreement was signed.
Another issue commonly facing first home buyers is the recording of assistance received from their respective families. The Reserve Bank’s restrictions(the loan-to-value ratio rules) have meant that obtaining family assistance is a necessity for many first home buyers to bump their equity above the threshold of new lending restrictions.
How this family assistance is documented is important for all involved and the consequences of a loan or a gift must be considered from all parties perspectives. While in some circumstances a bank may be willing to accept that the house buyers have a loan from their parents or family, more frequently banks want confirmation that the funds advanced are a gift. A gift is irrevocable and becomes part of the couple’s equity. If there is not a relationship property agreement in place, it will form part of the relationship property and therefore would be shared equally at the end of the relationship.
Home buyers who are contributing unequally to their purchase should consider and discuss their expectations in the event their relationship were to end, whether that be by agreement or by death of one of the partners. This discussion should be had with family if they are providing financial assistance. While discussing relationship property matters can be an awkward topic to broach, discussing expectations and putting in place an agreement as a safety net is likely to prevent a time-consuming and potentially costly dispute if things sour.