The protected interest in the family home

The general rule is that the Property (Relationships) Act 1976 does not affect creditors’ rights. The main exception is a partner’s ‘protected interest’ in the family home. For each partner, the law protects either half the equity in the family home or $103,000, whichever is the lower amount (although the Government has power to raise the value of the protected interest). A partner’s unsecured creditors cannot recover debt from the other partner’s protected interest.

Cordelia and Duwayne
Cordelia and Duwayne separated. Duwayne stayed in the family home with the couple’s children Erin and Freddie. Cordelia is a Bob Marley fan. Before they separated, Cordelia took out five personal loans so she could buy some rare Bob Marley memorabilia at a special internet auction. The loans had high interest rates because the creditors did not ask for any security when they gave Cordelia the loans. After they separated, Cordelia lost her job and could not repay the loans. Cordelia took the memorabilia and started a new life in Jamaica. Because Cordelia’s creditors are unsecured, they are not able to recover the debt from Duwayne’s protected interest in the family home.

The law provides this exception because the family home is important, particularly to children. One partner should not lose their share of the home because the other partner has personal debts.

We think that the law should continue to protect a partner’s interest. But it may no longer be appropriate for a protected interest to apply just to the family home.

The rate of home ownership in New Zealand is decreasing, so the reason to protect this asset over any other asset may no longer be as relevant.

Also, house values have increased significantly and the amount of $103,000 may not go far towards the cost of buying another house, particularly in some areas of New Zealand.

The protected interest is often of little use because the family home is mortgaged. A lender who has a mortgage against the family home as a security interest will have priority over the partner’s protected interest in the home.

What do you think?

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