Breaking up is hard to do but splitting your finances adds another layer of complexity.

The valuation of assets is more of an art than a science but the earlier an agreement is reached, the less likely a dispute will occur.

What is or is not relationship property is evaluated at the date of separation. So just what is relationship property?

Relationship property are things that are of financial value and includes the family home; contents; vehicles; boat; caravan (regardless of whether these were purchased before or during your relationship); income earned during your relationship; joint property, including bank accounts; and any increase in your KiwiSaver after your relationship begins.

While income earned during the relationship is regarded as relationship property, income earned after is not. When it comes to navigating a couple’s finances, there are five key steps.

1. Identify all property owned by each person at the date of separation

2. Classify the property as either one person’s separate property or relationship property to be shared

3. Value the property

4. Divide the property

5. Determine if an adjustment payment needs to be made to even out the division

What values are used if there’s a gap?

The court has the power to decide what the date of valuation will be because values can change over time, especially for depreciating assets like vehicles and appreciating assets like the family home. If time has elapsed between the separation and the date relationship property is formally divided, the value will usually be worked out at the date of the hearing. This provides some flexibility to avoid unfair outcomes.

What if a lot of time has passed?

It’s common for people to need time to emotionally process their separation before they’re ready to talk about dividing their assets and debts. Some may disagree about what assets are relationship property and who will keep the house. These things can delay the process so it would be unfair to use the separation value.

Depreciating assets

It’s common for values of depreciating assets to be decided at the time of separation. In a recent case, a vehicle was purchased shortly before separation for $45,000. By the time the couple applied to the court 18 months had passed since their separation and another two years had passed before their case was heard. The $12,000 valuation one party had obtained two years after separation was not accepted. The court recognised the asset had depreciated over time, so the value of the car was taken at the time of separation and assessed to be $36,000. The court also noted that although the car had decreased in value, the party who retained it had exclusively benefited from using it over that time.

Appreciating assets

For other assets, the current value may be more appropriate which is common for real estate.

Bank account values can be more difficult and are usually worked out on a case-by-case basis. Whether a value is determined at separation date or current date will depend on how much the values have changed and why they have changed. For instance, one party has saved a lot of their income since separation or had additional outgoings since the separation. Your lawyer will likely ask to see both your current bank statements and those at the date of your separation.

Word to the wise

No one has a crystal ball so a contracting out agreement (COA) that is made during your relationship is a good idea. It can help reduce the time it takes to reach an agreement if you separate and clearly define what is your property and what is relationship property.