House prices drive boom in prenups
Craig Hoyle purchased his first home in Auckland last year after believing for many years he never would, and moved in a week before Christmas.
Now that the 33-year-old is on the ladder, he has resolved that before his partner moves in, there will be a legal agreement in place to protect his ownership should the relationship end.
‘‘I have seen how hard it is buying a house on my own in Auckland, and the market is only going to get harder, and having been through the experience once, I am very keen to avoid going through that process again,’’ he said.
‘‘For me, it’s good to be really clear about what expectations are.’’
Hoyle, who is a news director at the Sunday Star-Times, is not alone in his decision.
Relationship property law expert Lady Deborah Chambers, KC, said the number of prenups was increasing every year.
‘‘They are definitely the way of the future,’’ she said. ‘‘I don’t think it is killing romance, it’s just practical and sensible.’’
Chambers said if a homeowner had struggled to buy their first home, and splitting it in a separation would make it hard for them to get back on the ladder, that person should seek legal advice before starting a de facto relationship.
She estimated that in the past about 5% of marriages would have a prenup, now it was closer to 25%.
Helping prepare prenups used to make up about 1-2% of Chambers’ practice’s work. Now it was about 30%.
Hoyle said that in the long run, planning for possible scenarios could save a lot of potential problems down the road.
‘‘It’s easy enough to assume everything is going to go well, and of course when a relationship is going well you’re not really thinking about how it could go badly, or what plans need to be in place,’’ he said.
‘‘But I think the best time to plan for things going badly is when things are going well. It’s sort of hoping for the best, and preparing for the worst.’’
Hoyle did not have any family support in buying his own home, after having been excommunicated from the Exclusive Brethren after coming out as a teenager.
‘‘So my asset base is what I can build, I can’t fall back on family money if things go wrong.’’
The Property (Relationships) Act governs how the property of married couples, civil union couples and couples deemed to be in a de facto relationship is divided if the partnership breaks down.
A relationship is generally deemed to be de facto if the couple have lived together for three years, although there were other variables that a judge could take into account – such as if they’re in a sexual relationship, whether they had children, and whether friends and family consider the relationship to be de facto.
Chambers said a big issue with the act was that when it came to the family home, decisions were generally not based on contribution.
The general rule was the family home was divided 50/50 if a couple had been living together for three years, regardless of where the money came from to buy it, if no other legal agreement was in place.
’’That can create real problems for people if that’s your only asset,’’ Chambers said.
A prenup or similar agreement essentially allowed a couple to ‘‘contract out’’ of the act, and the act allows this, but it also allowed for one of the parties to go to court, to try and persuade a judge that the agreement should not be enforced, because it resulted in a serious injustice.
Chambers said this was why those wanting a prenup should seek legal advice.
She advised clients to revisit their agreement every four or five years, or when there were major changes in the relationship or asset base, to ensure it would still be deemed fair and reasonable.
If, for example, a man owned a home prior to marriage, a couple may sign a prenup stating the wife was not entitled to the home in the event of a divorce.
This may be deemed fair at the outset, but four years later, if the couple now had children, or the wife had stopped working in order to care for children, it may no longer be deemed so by a judge, she said.
There were other ways to keep property separate should a relationship end, such as putting it in a company or trust, Chambers said.
‘‘Trust-busting’’ had recently become more common, so these were not as bulletproof as they once had been.
The high value of property had led to another phenomenon – baby boomers and older property owners seeking legal advice on how to hand down property to children, while ensuring their partner did not have a claim to it.
‘‘It’s not uncommon for me to have parents coming in asking for structures and agreements for their adult children in regard to protecting the wealth their child is going to inherit.’’
Chambers said partners usually were not entitled to inherited property, however, this could change if, for example, that property was used as a family home.
Hoyle said the need for a formal agreement was not limited to situations where one partner owned a home, he had seen friends having to pay out half their KiwiSaver when the relationship ended.
‘‘I certainly don’t want to be put in that situation, and neither does my partner.’’
He’s aware of other cases where courts have ruled that one partner’s contribution to a home was actually a loan from that partner’s parents.
‘‘So when the divorce went through the parents clawed back the loan and then the partner was able to claim half the other person’s deposit.
‘‘It’s such a legal minefield with trusts and family involvement, I think you really need to be very clear where you stand.’’
‘‘I don’t think it is killing romance, it’s just practical and sensible.’’
Lady Deborah Chambers, KC