Divorce property disputes: when house prices go up, who gets the increased value of separate property?

It’s no news to anyone that the value of New Zealand properties rose steeply over the last 20 years, and might lurch upwards again.

In relationship property disputes, an Auckland divorce lawyer is frequently asked to advise on whether increases in the value of separate property (typically, property already owned by one partner before the relationship began, or property inherited during the relationship) will be shared or not?

My answer is that it depends on the facts. The questions and answers below illustrate how different facts produce different outcomes.

My husband and I agreed to divorce after being together for 18 years. My husband owned a start-up business when our relationship began. During our relationship my husband worked long hours in the business building it up into a now very profitable enterprise. It wasn’t always like that. During our entire relationship I worked in IT and we used my salary to live off. My husband’s divorce lawyer says that the business is my husband’s separate property. Is that right?

At the beginning of the relationship your husband’s business was his separate property. However, a divorce lawyer could make a good argument that your actions in providing a salary for you both to live off indirectly contributed to the increase in value of the business by freeing up your husband to spend long hours working in the business and effectively subsidising the growth of the business. It could then be argued that because of your contributions you should receive at least a share of the increase in value of the business relative to your contributions.

My wife and I have separated. My wife owned (and still owns) a rental property when our relationship began. During our relationship I paid the mortgage on the property and the property has more than doubled in value because of rising Auckland property prices. Am I entitled to a share of the increase in value of the property during our relationship?

Your wife’s rental property was and remains her separate property. As a general rule increases in the value of separate property remain separate property. However, that increase in value can become relationship property where the increase or part of it was the result of applying relationship property to it, directly or indirectly.

Your salary earned during the relationship was relationship property. However, the problem here is that your payments of the mortgage did not increase the value of the property. While the principal repayments no doubt increased your wife’s equity in the property, they didn’t increase the actual value of the property. Increases in value due to inflation accrue to the owner of the separate property.

That is not however an end to the story. While your payments of the mortgage did not increase the value of the property, a divorce lawyer could make a decent argument that the mortgage payments sustained the value of the property and that as a consequence you are entitled to at least some compensation for that.

My husband and I were together for 19 years. Not long after our relationship began my husband received an inheritance and bought a business. I stayed home and looked after our three children and the household. My husband spent long hours working in the business which is now very profitable. My husband’s divorce lawyer says that I am not entitled to a share of the increased value of the business? Is that right?

Your husband’s inheritance was his separate property. The business that he bought with the inheritance was also his separate property. However, a divorce lawyer could make a good argument that by staying home and taking care of the children and the household, your efforts freed your husband to work in the business and that as a consequence the increased value of the business during your relationship is relationship property. That doesn’t mean that you automatically get half the increase in value of the business but you do get a share of the increase in value relative to your contributions.

My wife owned a rental property when our relationship began. We were together for 10 years but have agreed to divorce. Not long after our relationship began, I received a large bonus and used the money to do major renovations on my wife’s rental property to increase the rent that it produced. Since doing the renovations the rental property has more than doubled in value. My wife’s divorce lawyer says that the rental property belongs to my wife. Is that right?

At the beginning of your relationship the rental property was your wife’s separate property. Your salary bonus was relationship property. Assuming that the renovations increased the value of the property then a divorce lawyer could make a strong argument that the entire increase in value since the renovations were carried out is relationship property which gets to be divided equally between you both.

My husband and I have agreed to divorce. We have been together for five years. My husband owned (and still owns) a rental property when our relationship began. During the relationship I did the garden and maintained the property. The property is now worth around $250,000 more than what it was worth when our relationship began. Am I entitled to a share of the increase in value of the property?

Your husband’s rental property was and still is his separate property. As a general rule increases in the value of separate property are also separate property. That can change when relationship property is used to increase the value of the separate property, or when the efforts of the spouse or partner increased the value of the property. Those efforts have to be more than trivial and need to have increased the value of the property. So unfortunately, your work looking after the garden and maintaining the property is most unlikely to have increased the value of the property.

Instead, you may be able to claim an increased share for ‘sustaining’ your husband’s property. Again, that can happen when relationship property is applied to the separate property, or by the efforts of the spouse or partner. But instead of requiring an increase in value, the efforts to maintain the separate property were to “keep it up or keep it going”.[1]

Therefore, if a court finds your gardening and maintenance at least sustained the separate property, it may then consider an increased share of the relationship property or a one-off payment. The judge has discretion. The amount will not relate to the impact the sustenance had on the value of the property, but will be decided by looking at the overall case “in the round” including existing shares of relationship property and any injustice that should be compensated.

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[1] French v French (1987) 4 NZFLR 553 (CA) per Cooke P at 556