Should the Property (Relationships) Act 1976 affect creditors’ rights?

Publication Date 
01 February 2018

In many relationships, one or both partners will have some form of debt. They might have funded a house through a mortgage, bought a television on hire purchase, or paid for a car by a finance arrangement from the dealer.

The Property (Relationships) Act 1976 gives each partner a right to share equally in the couple’s relationship property. But what should happen if one partner’s creditors also claims a right to the property? Whose should take priority – the creditors or the partners?

The Act says that, in most cases, creditors have the same rights as if the Act did not exist. In other words, the creditors will usually take priority over any interest a partner claims under the Act.

The main exception is that the Property (Relationships) Act 1976 gives each partner a protected interest in the family home of up to $103,000. Only this interest has priority over unsecured creditors. It does not affect loans that are secured over the partners’ property.

The protected interest exception has several limitations. The $103,000 figure has not kept up with inflation. House prices have increased. $103,000 is unlikely to go far towards the cost of buying another house, particularly in some areas of New Zealand. Should the protected interest be higher?

The protected interest exists only in relation to the family home. The law advantages couples who own a home, and the rate of homeownership in New Zealand is decreasing. Should the protected interest apply to a wider range of assets, or should it continue to attach only to the family home?

The Law Commission is considering these issues and other issues affecting creditors. Chapman Tripp says any changes the Law Commission recommends to creditor’s rights over relationship property could be significant.

The Law Commission wants to hear if the Property (Relationships) Act 1976 treats creditors appropriately, or if there are specific problems that justify reform. It also wants people to share their thoughts on other issues relating to its review of the Property (Relationships) Act 1976.

The Commission is receiving submissions until 7 February. You can find out more at: http://prareview.lawcom.govt.nz