All is fair in love and law

By DIANA CLEMENT

What's your's is mine. As romance blossoms, few couples want to discuss the nitty gritty of money. But sticking your head in the sand about the Property (Relationships) Act could seriously dent your wealth. If you want to protect yourself, visit a lawyer before you "Pass Go" on your way to Freedom Furniture's bedroom department. If the gloves come off as love goes out the window, you could find yourself losing more than you imagined possible.

Q: What's the act about?

A: The PRA is designed to ensure that property is split fairly at the end of a relationship that has lasted three years or more - whether the partners are married, de facto, heterosexual or homosexual. As one financial adviser pointed out, it also applies to mistresses, rest home relationships and even flatmates if a sexual relationship develops.

In some cases, such as where the couple have children, it can also apply to short-term relationships.

The act also covers what happens to property on the death of one partner. So even those in the most stable of partnerships needs to be aware of the act to ward off any shocks.

Q: What does it cover?

A: Relationship property includes the family home, family chattels such as furniture, vehicles, boats, all earned income and property bought after the relationship began. The partner who owns it will usually retain property that can be proved to be separately owned. That doesn't just mean property registered in one name. The PRA can also cover debts accumulated during a marriage or de facto relationship.

Q: Should you contract out?

A: In a perfect world, we would interview likely partners and choose one with similar values and aspirations.

Can you face living with someone who maxes out their credit cards each month? Or with a penny pincher? Those with an ounce of sense will take a hard-hearted look at their financial vulnerability as they enter a relationship. Yet pheromones tend to rule our financial heads when we start a relationship.

The PRA allows couples to contract out and sign legally binding prenuptial agreements . Spicers financial planner Aaron Hing describes it as the "get out of jail free card". And couples do routinely choose this route, says Auckland barrister Ross Knight - who specialises in relationship property law.

Contracting out isn't just about prenuptials. It is often used in estate planning to protect against rest home subsidies and also potential creditors. Couples that contract out for this reason should ensure they seek expert advice, Knight says.

Q: Should you get advice?

A: Those most in need of advice, says financial planner Robert Oddy of International Financial Planners, are single people with significant assets before they even meet potential partners.

Couples who have recently formed a relationship find it difficult to discuss the PRA dispassionately and, often, one of the partners will become anxious about the prospects, he says.

"The intention of the act was fine but this is a nasty, nasty piece of legislation with the potential to cause intense grief," Oddy says.

Consequently, he makes clients aware of the issues and refers them to specialist lawyers.

Oddy also warns clients of the issues of the intermingling of property because the courts can and do "trust bust", extracting money from trusts where they think the act has been contravened. He says there are many traps for the unwary, such as allowing banks to take global guarantees over individual assets such as businesses in trust under one name for a joint property.

Contracting-out agreements can be contested in the courts. So you need to make sure your's is watertight. Family lawyer Vivienne Crawford wrote in this newspaper about a wife who had been pressured to sign an agreement before the present act, agreeing that several properties and a business were all her husband's separate property and she would take just the $25,000 and a car she entered the relationship with. The agreement was contested many years later and the wife won what she was entitled to had the agreement not been signed.

The PRA is tighter than previous law and you must now prove "serious injustice" to have an agreement overturned. But Knight says he has seen cases of lawyers being sued for providing advice that was not "properly robust" as to disclosure or the implications of the agreement.

Q: What does a lawyer cost?

Although there's a model contract on the Department of Justice's website (Relationship Property Contract), you can't and shouldn't get away without seeing a lawyer. The law requires that both parties receive independent legal advice before contracting out and sign in the presence of a lawyer. The PRA is such a minefield that even if it was possible, no layperson in their right mind should take a DIY approach.

A bargain basement contracting-out agreement, in straightforward circumstances, would cost from $750 plus GST, said Knight. But contracting out can be much more expensive than this with specialist lawyers often charging $350 to $450 an hour plus GST for their services.

It does, on the other hand, provide insurance against huge legal fees should your battle over a split of assets turn acrimonious.

PUTTING PROPERTY IN TRUST

Trusts are big business for lawyers and other professionals who make big bucks out of them. So it's no surprise TV viewers and newspaper readers are assailed with adverts warning of your children marrying good-for-nothing layabouts.

But putting your property, including businesses and farms, in a trust before you start a relationship can, in many circumstances, prevent it being split under the PRA.

Trust specialist Bill Patterson, of Patterson Hopkins in Auckland, says: "No one can guarantee they are totally immune [from the PRA], but you are a mug if you don't if you are single as you are inviting trouble."

If the property is transferred into a trust during the relationship and it is considered that the transfer has the effect of defeating the sharing of the relationship property, the court can order compensation.

DISADVANTAGED PARTNERS BEWARE

If you're the financially dominant party in a relationship, which usually means you're the man, you probably think you have a lot to lose.

But so do the disadvantaged parties. Women, as a result of having children, often don't progress up the career ladder, returning in their 40s when they're not as employable.

Disadvantaged partners are sometimes pushed to contract out and a minority of relationships simply fall apart at the church doors because one partner refuses to sign a contracting-out agreement, Knight says.

The act does have economic disparity provisions for these situations and Knight says forensic accountants are often employed to address issues such as the effect of putting a career on hold to raise children.

* Diana Clement is an Auckland-based freelance writer.