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Property Relationships Act 1976 – who gets the increase in value?

The purchase of a family home using the combined resources of a couple, will in most circumstances result in the home being classified as relationship property subject to equal sharing under the Property Relationships Act 1976.

In the absence of any agreement to the contrary, this will usually be the case after the relationship has lasted 3 years, regardless of the amounts contributed by the respective parties. This presumption of equal sharing does not, however, apply to investment properties and other assets which may be classified under the Act as separate property. It may be that either of the partners owned property that was never intended to be a part of the relationship nor for the common use of both partners. Where that property was purchased using separate funds, such as an inheritance or savings prior to the commencement of the relationship, that investment property would usually be classified as the separate property of the owner and not subject to any sharing.

The Courts have however looked into the classification of increases in value of separate property in applying section 9A of the Act. This section provides that any increase in value in the separate property which is attributable wholly or in part to the application of relationship property, is itself relationship property.

Often the owner of the separate property will, during the relationship, use income from his or her employment to sustain the outgoings and improvements on the separate property which may directly or indirectly increase its value. This does not necessarily mean that the value of the income applied equates to the interest of the other partner when the property is divided for Property Relationships Act purposes. The capital gain to the separate property may be attributable largely to the inflationary property market rather than the value of mortgage payments, rates, and improvements paid for by the income of the owner. In the case K R J v. R K (2013), improvements paid for by the husband of approximately $8,000 resulted in the capital gain from the sale of the property of over $160,000 being shared equally between the husband and the wife, due to the application of section 9A (1).

This situation would not have arisen had the parties entered into a Property Relationship Agreement, excluding the application of section 9A to the assets which were separate at the commencement of the relationship, and which were always intended to remain separate. This may be particularly important in a second or subsequent relationship where the parties may have other commitments, e.g. children, and the value in the separate property has been provided by a deceased partner or relative.

For more information concerning Property Relationship Agreements, contact our Hawke’s Bay based Relationship Property lawyers, Magnus Macfarlane or Gerry Sullivan.

Related article: Relationship Property Law regarding Inheritances