Jo and Jessica have been in a de facto relationship for six years. They do not have a contracting out agreement in place. They have no children. Jo’s Grandmother has passed away, leaving an inheritance to Jo of $100,000.00.
Jo and Jessica own a townhouse in Hamilton and a small holiday home in Waihi. The townhouse has no mortgage registered against it, but the Waihi holiday home does. At present, the inheritance is in a bank account in Jo’s sole name. Jo would like to pay off the mortgage on the Waihi holiday home, however, at this stage, Jo does not want the inheritance classified as relationship property.
Normally, an inheritance kept in a bank account in the recipient’s name is that party’s property and if the couple separate, is not divisible. If Jo wishes to retain the inheritance as her separate property and pay off the mortgage, Jo and Jessica could enter into a contracting out agreement to protect the inheritance.
Separate property can become jointly owned when it is intermingled with relationship property. Let’s say there is no contracting out agreement and Jo spends the inheritance on a boat used by both Jo and Jessica, and stored at their Waihi holiday home.
The fuel is paid from their joint account and the items on the boat – sea biscuit, skis, fishing rods etc – are owned by Jo and Jessica. The classification of the inheritance will now be relationship property. If the parties separate, each party will have a half share of the valuation of the boat.
If Jo passes away, the boat will become Jessica’s.