Is My Inheritance Relationship Property?

Following on from our article “Is My KiwiSaver Relationship Property” we continue our Relationship Property Series by addressing the question “is my inheritance relationship property”.

To answer this question, we need to understand the term known as “intermingling”.  Understanding what intermingling is, and how it occurs, will help ensure your inheritance is applied as intended.  This article outlines several common examples of intermingling, and actions you can take to prevent this from happening.

The starting point for inheritance is that it is classified as a gift, which makes it “separate property” under the Property (Relationships) Act 1976 (the Act).  However, an inheritance that is “intermingled” with relationship property can lose its status as a gift.

Common Examples of Intermingling

Intermingling occurs when property (or its proceeds) become so entangled with other relationship property, that it becomes impracticable to classify it as separate property.  The whole property then becomes relationship property. 

Examples of when inheritance can become intermingled are:

• Using inheritance to repay a relationship debt/loan. A typical situation is parties using inheritance monies to service a house mortgage;
• Depositing inheritance monies into bank accounts used by the relationship, for instance, joint bank accounts;
• Purchasing assets with inheritance monies, which are then used in the relationship. Buying a car that becomes the family vehicle, would be a common example.

In each of these scenarios, while it may make financial sense in the moment, as time goes on it becomes harder and harder to distinguish if the inheritance monies are separate, or relationship property.  If it becomes too hard to tell, the chances are your inheritance has “disappeared”, and become intermingled with other relationship property.

Keeping Inheritance Separate

If you are looking to protect or manage your inheritance in these sorts of situations, common ways to do so are as follows:

• Using/investing the inheritance in something completely separate from the relationship, such as a term deposit in your own name;
• Entering into a contracting out agreement with your partner under the Act, often referred to as a “pre-nup” or “pre-nuptial agreement”. This agreement would specify how the inheritance, regardless of its use, is treated upon separation.  A contracting out agreement can be entered into at any point before, or during, the relationship;
• Setting up a trust to deal with the inheritance, separate from the relationship.

Knowing which option to take can be confusing at the best of times, but being aware of those options is a great first step.  As with most things, it is better to seek advice early.  The experienced team at McCaw Lewis can help you navigate any aspect of your relationship property matters and answer any questions you may have.

Andrew Hong is a Senior Solicitor in our Dispute Resolution Team and can be contacted on 07 958 7447.