Q. My partner and I met four years ago and have been living together for three and a half years. We are now separating. She has two children from a prior relationship who live with their father and visit us twice a week. We are both working professionals and have been sharing our money, apart from in one area. My partner has paying her child support from her bank account as well as a couple of legal bills for sorting out parenting arrangements with her former partner. I have been saving up for two years to buy a boat. It was something we talked about all the time – she has kids and I’ll have a boat. I expected to keep these savings when we parted, but she said she’s entitled to half of it. This is totally unfair – I was happy to contribute when the children visit, and we have needed a bigger apartment for when they stay with us, but this is not what we agreed. Can she really do this? If we’re sharing bank accounts, can I be compensated for all the child related costs she has paid?

 

A. Verbal agreement

Unfortunately, a verbal agreement is not recognised when it comes to dividing your relationship property. Without a formal legal agreement like a prenup, the terms of your separation will be governed by the Property (Relationships) Act.

 

The Property (Relationships) Act

The Act dictates that once you have been together for three years, generally speaking, your assets and debts become “relationship property” and have to be divided equally if you separate. This includes assets like property, bank accounts, superannuation, cars and furniture. Debts can include credit card and business debts and are considered relationship property even if only in the name of one spouse.

There are some assets and debts which remain the “separate property” of each person and don’t have to be shared in a separation. These include:

  • bank accounts which existed prior to the relationship, that are kept separate and do not contain income earned during the relationship
  • the portion of retirement funds acquired prior to the relationship
  • family heirlooms and taonga
  • debts incurred before the relationship started, such as student loans or credit card debt.

Where someone pays personal (separate) debts using relationship property, then the law allows compensation for this, giving the other partner a greater share of the relationship property in the settlement.

 

Your bank accounts

Unfortunately, because your savings were accumulated during your relationship, they are considered relationship property and will have to be shared with your partner.

 

Child support and legal fees

You’ve asked about compensation for your partner paying child support costs and legal fees.

When this situation has been considered in Court, the Judge has normally deemed the child support payments and legal fees as “debts” owing at that time. This was irrespective of whether they had been paid before after the date of separation.

The Court has concluded that these were relationship debts rather than separate debts, the rationale being that they are known about by both parties and are part of the household expenses.

This rule surprises people, and many find it unfair. However, it is the law.

 

Next steps

You should meet with a lawyer who can look at your situation in detail and explain your rights and options. Then talk with your partner, either by yourselves or with your lawyers, to try and work things out. Many couples settle their relationship property by agreeing to what they think is fair, and not necessarily what the law entitles them to.

I would avoid going to Court if you can – it is expensive and time consuming. It is usually best to reach agreement, and the sooner the better, so you can both move on.

 

Conclusion

It is important for couples to discuss their financial situation before they move in together, including their debts and responsibilities, and how they expect their assets to be divided if they separated. Not an easy topic to raise, but better to start on the same page rather than trying to discuss it once you’re living together.

Once you’ve agreed on this, consider getting a prenup drawn up – it’s the only way to ensure that what you agreed is legally binding. The process requires each party to have their own lawyer to provide independent legal advice and then to witness them signing the prenup.

Without a prenup, the Property (Relationships) Act will dictate the terms of your separation. An equal division of assets and debts might differ greatly from what you verbally agreed or what you think is fair.

 

This article was first published in the New Zealand Herald.