With property prices cooling in the past year it has become increasingly difficult for separated couples to each buy a property in their own right especially after the family home is divided. In light of this an approach some have adopted, particularly when parties have separated on reasonably good terms, is where one partner supports their ex-partner in the purchase of a new property.

The recently released judgment of Lung v Liu [2022] NZHC 3074 illustrates not only the financial costs of this approach but the costs it can have on the relationship itself. Importantly it highlights the need for obtaining independent legal advice when entering into such arrangements.

Where the problems began

The parties had been married and in a relationship for 8 years, during which time they purchased their family home. Upon separation, the family home was sold and proceeds were split equally between the two.

Eight months after their separation Mr Liu entered into an agreement to purchase a property with his half share of the proceeds from the family home. To meet the purchase price Mr Liu sought a bank loan, however, due to his limited income, was unable to borrow the full amount on his own. The bank agreed to lend the money if Mr Liu was a joint borrower with another person. He asked his ex-partner, Ms Lung, who agreed and on settlement title of the property was registered in their joint names.

In an oral agreement before settlement the parties agreed Ms Lung’s name would only be on the title for the purposes of the refinancing while Mr Liu was responsible for the management and costs associated to the property and the refinancing arrangement.

A difference of opinion

At the High Court both parties disputed what their interest in the property was.

Ms Lung claimed she was entitled to a half share as both she and Mr Liu were still jointly registered on the title, while Mr Liu argued that per their oral agreement Ms Lung’s name was only on the title for the purpose of securing the loan and that once the loan was repaid her name would be removed.

Ms Lung filed proceedings seeking an order under the Property Law Act 2007 (PLA) to sell the Property and divide the proceeds equally. While Mr Liu argued that the High Court was unable to deal with the issue as it was a relationship property dispute submitting it must instead be dealt with at the Family Court.

The Courts findings

The Court found that despite the parties being separated, they were still legally considered ‘spouses’ under the Property (Relationships) Act 1976 (PRA) as their marriage had not yet been dissolved. Consequently this meant that the PRA would be relevant for any orders made.

More relevantly Justice Sussock held that despite the application of the PRA, the High Court still had the discretion to grant the order to sell the property and split the proceeds. While Justice Sussock did not grant the order itself, she confirmed the Court has the power to do so if it would align with the principals of the PRA.

Oral agreements aren’t worth the imaginary paper they’re written on

Mr Liu presumably thought that when purchasing a home with his share of the proceeds from the sale of the couple’s former family home, he was achieving a degree of security and financial independence. He relied on his verbal agreement with Ms Lung and did not appear to obtain advice which would have indicated to him the implications of putting his ex-partners name on the title of his new house. This case, although at this stage just an interim judgement, highlights how financial security can be put a risk when independent legal advice is not obtained.

If you are considering purchasing or refinancing a home, it is essential to first seek appropriate legal advice. Please get in touch with our Property experts who are here to help you navigate these arrangements.