Features

Implications for relationship property in the rural sector

A look at the laws around relationship property in the rural sector, the differences between a ‘family home’ and a ‘homestead’, the implications for both parties in a split, and what can be done early on to help alleviate problems

When a relationship breaks up, it’s always difficult to divide up your joint assets and get on with a new life. When your assets include a rural property, the division of property can be quite complex.

We look at the law around relationship property in the rural sector, the differences between a ‘family home’ and a ‘homestead’, the implications for both parties in a split, and what can be done early on to help alleviate problems.

The law

The Property (Relationships) Act 1976 (PRA) governs the law in relation to property owned by qualifying couples; its aim is to acknowledge the equal contributions of the people within a relationship and, in turn, to provide a mechanism for the just division of relationship property if their relationship breaks down. 

The general principle under the PRA is that all parties are entitled to an equal share of relationship property; this includes both assets and liabilities (including any relationship debts).

AdobeStock_444546761.jpgIf a couple wishes to contract out of the provision of equal sharing, they may enter into a contracting out agreement, commonly known as a prenup. If a couple has separated, they can still enter into an agreement but it’s likely to be based on the principle of equal sharing.

Classifying your property is vital

When discussing how relationship property could be divided, it’s important to decide on the classification of property. You will have to agree on what is, or could be, relationship property so it can be dealt with correctly in any agreement.

When deciding the classification of property, you may think that assets owned by a third party, such as a trust, will not be subject to a relationship property agreement. This may not always be the case, however, particularly in the rural context. An example is where mum and dad own the farm in trust to which the children are beneficiaries. If one of those children and their partner live and work on the farm, it may be that the property in which they live is their family home and must be considered as part of the division of assets if the child and their partner separate.

AdobeStock_480839220.jpg

Where the home is located on the farm, however, the entire farm does not necessarily become subject to the principle of equal sharing. This is where it’s important to correctly classify the property as either the ‘family home’ or a ‘homestead.’

Family home

The PRA defines the family home as
a property, including all land, buildings, and improvements, which the couple generally, or primarily, reside in as their family residence. If the couple’s residence is classified as the family home, then all land under that title must be shared equally in a split unless the couple has a contracting out agreement specifying the division of the property. The property within the whole title must be used for the benefit of the relationship to be classified as the family home.

Homestead

Where only part of the property within the whole title is used for the benefit of the relationship, then the portion attributable to the relationship may be considered the homestead instead of the family home. In this case, the remainder of the property may not be subject to the PRA principles of equal sharing, particularly if it’s owned by a third party, such as parents of one of the parties.

A family home will be considered a homestead if a portion of the property within the title is used by the couple as their general, or primary, family residence but the remainder of the title is used for the overall economic gain of another entity. This is more common in the rural context where couples live on the farm but only a portion of the overall title contains the family home and the remainder is used for the economic gain of the rural enterprise.

AdobeStock_383292911.jpg

Therefore, it’s also important to correctly classify what tasks are carried out on the property and whether they are attributable to the relationship or not. For example, where horses are kept on the property, the horses may be for general use for the family, therefore, the land for the horses would likely be included within the definition of the homestead. However, if the horses are only used within the course of the business for economic gain within the enterprise, then the land would likely be excluded from the definition of the homestead.

In a rural context, the home may be considered a homestead instead of a family home where, for example, there’s a crop farm owned by one of the wife’s parents’ family trust. However, the couple reside on the farm and the wife works on the farm but the husband does not. In this case, the portion of the title in which the couple reside would likely be considered the homestead; the remaining property under the title used for crop farming would not be included in the division of relationship property if the parties split up, as it’s not used for the benefit of the relationship but for the overall economic gain of the farming enterprise.

For a property that contains a homestead, the separating couple is only entitled to an equal share of the equity attributable to the homestead, not the equity of the entire property. This is why it’s important to correctly classify property. The equity attributable to the homestead can be calculated by deducting the total debt owed for the whole property off the total equity of the whole property. The net equity sum would then be apportioned in accordance with the share of the property that’s considered to be the homestead within the overall title.

AdobeStock_403635131.jpg

If the couple has entered into an agreement to classify assets, these assets could be classified as to what portion of the property is to be considered the homestead and what portion is used for the overall economic productivity of the farming enterprise. This could help prevent arguments later as to how assets are divided up if they separate.

As you can see, it’s important to correctly classify property and how it’s apportioned when dealing with relationship property issues and when conducting succession planning. People should do their best to reach an agreement and record this in a legally binding contracting out agreement to ensure it’s enforceable if their relationship breaks down. The agreement should be reviewed frequently to ensure it’s still a fair agreement and reflects the parties’ wishes.

Jane Argyle-Reed is a director of Ashburton and Rolleston law firm, Argyle Welsh Finnigan Limited. She specialises in all matters rural as well as employment law, dispute resolution and relationship property matters. Jane and her husband, Simon, farm 400 hectares in an arable farming operation based in both the Selwyn and mid-Canterbury districts.

Argyle Welsh Finnigan Limited is a member of NZ LAW Limited, an association of 60 independent law firms practising in more than 100 locations.

Information given in this column should not be a substitute for legal advice.
 
Find new and used farm machinery for sale in NZ

Previous ArticleNext Article
Send this to a friend