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  5. What should happen when the value of separate property increases?

What should happen when the value of separate property increases?

Generally, when a person’s separate property increases in value or produces income, the increase or income is also separate property.

Gayle and Steve
Gayle put some money on a term deposit at her bank before she entered her relationship with Steve. Later, the term matures and she is repaid the money with interest into her personal bank account. The money and interest are likely to remain separate property.

The situation is different if the other partner to the relationship causes the increase or earns the income.

Rod and Areta
Rod and Areta are married.

Rod has a farm which is his separate property. He wants to convert it into a dairy farm.

Areta helps. She uses her savings from the income she earned during the relationship to help pay for a new milking shed. She also quits her job so she can look after the couple’s children and the household. That way Rod can work longer hours converting the farm.

The increase in the farm’s value after the conversion is partly attributable to Areta. Consequently, part of the increase in value is likely to be relationship property.

These rules are not always easy to apply. It can be difficult to work out whether a partner’s actions have enhanced the other partner’s property. In our example, Areta has allowed Rob to improve his farm because she has taken on additional family duties. Her actions have had a big impact, but it is difficult to measure because the actions have indirectly affected the property’s value.

What do you think?

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