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What Happens to Your KiwiSaver When You Separate?

Investment

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5.5.22 |

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The impact of divorce on your KiwiSaver

Separation is a painful reality for many couples in New Zealand. Over 7,900 couples divorced in 2023 alone, according to Statistics NZ, and countless more de facto relationships ended, which for legal purposes, are essentially the same as marriage.

As if the emotional turmoil wasn't enough, the financial complexities that arise during separation can feel overwhelming.

One of the pressing concerns is understanding how KiwiSaver, your retirement savings, is affected. Are your hard-earned KiwiSaver funds considered relationship property? How should they be divided? And what steps can you take to protect your financial future?

This guide aims to provide you with the answers you need. We'll delve into what is and isn’t relationship property, explore potential scenarios, and offer practical advice to help you.

What is Relationship Property?

Relationship property refers to assets and debts acquired during a relationship in New Zealand.

The Property (Relationships) Act 1976 governs the division of relationship property upon separation or divorce.

Key Relationship Property Points

Generally, all assets and debts acquired during a relationship are considered relationship property.
If you’ve been in a de facto relationship for three years or more, which usually means if you are a couple living together, then both partners are entitled to share relationship property equally, including assets acquired during the relationship, if the partnership ends. Even if you’ve been together less than three years and remain unmarried, in some cases a court can still decide that you are subject to this law, especially if there are children involved. Basically, you might not be married, but the law can still treat you as if you are.‍
Separate property, such as assets owned before the relationship, is generally excluded from relationship property. However, separate property can become relationship property if it is mixed with relationship property, for example if you both live in a house which one of you owned beforehand.
The division of relationship property is typically based on a 50/50 split, unless there are compelling reasons for a different division.

Joint debts and liabilities are also split equally unless one partner can prove the debt was incurred for personal benefit rather than the relationship.

Examples of Relationship Property

Homeownership
Bank accounts
Investments
Vehicles
Furniture
Debts (e.g., mortgages, credit card debt)

What is Separate Property?

Separate property falls into a few categories.

It is most commonly property you owned before the relationship, which hasn’t been used for the benefit of the relationship or co-mingled with relationship property.
Separate property includes inheritances and gifts, so long as they are kept separate from the relationship. For instance, if you inherited a home which your spouse never lived in or visited, and which did not benefit the relationship in any way then this would likely be categorised as separate property.
Property declared as separate property in a contracting-out agreement (basically a term for a prenuptial (“prenup”) agreement which doesn’t need to include marriage). A prenup allows couples to agree on a different property split in case of separation.

Learn more: Should you get a prenup?

Is My KiwiSaver Relationship Property?

KiwiSaver Scheme contributions made while you were in a relationship are typically treated as relationship property.

By including KiwiSaver in your relationship property, it ensures a fair distribution of all assets gained during your partnership, as outlined by the Property (Relationships) Act.

If you started KiwiSaver after entering the relationship it’s likely the entire account will be relationship property, so will be split with your partner.

Any growth or returns on KiwiSaver contributions made during the relationship are also generally considered relationship property.

Different Scenarios

KiwiSaver Opened Before the Relationship

If you opened your KiwiSaver account before entering the relationship, only the contributions made and the growth generated during the relationship will typically be considered relationship property.

Prenuptial Agreement

A prenuptial agreement can specify whether KiwiSaver is considered relationship property.

Separate Property Contributions

If you contribute to KiwiSaver using separate property (e.g., inherited funds), those contributions may not be considered relationship property.

This is where it is important to note that the specific rules for KiwiSaver and relationship property can be complex.

Calculating KiwiSaver Division in a Divorce

When dividing KiwiSaver contributions during a divorce or the breakdown of a de facto relationship, the following steps are typically involved:

Identify the relevant contributions: Determine which KiwiSaver contributions were made during the relationship up until the date of separation. This usually includes contributions from you, your employer, and the government.
Calculate the total value: Determine the total value of both partner’s KiwiSaver accounts at the time of separation, including any growth or returns on the contributions made during the relationship. Independent valuations might be required if there are disagreements about the balance at the separation date.
Apply the 50/50 rule: Generally, KiwiSaver contributions made during the relationship, including any growth or returns, are divided equally between the partners. This means each partner is entitled to half of the total value of both accounts.
Consider any exceptions: There may be exceptions to the 50/50 rule, such as if one partner contributed significantly more than the other, or if there is a prenuptial agreement.
Negotiate or seek a court order: If you and your ex-partner cannot agree on the division of KiwiSaver, you may need to negotiate or seek a court order to determine a fair outcome.

How Do You Split KiwiSaver?

As your KiwiSaver accounts will almost certainly have different balances, you'll need to split the difference with your ex to make it fair.

Often, couples choose to keep their KiwiSaver accounts intact and settle other assets instead.

For example, if one person has $45,000 and the other has $15,000 in their respective KiwiSaver Scheme investments, the total KiwiSaver value is $60,000. At face value, it’s likely that each person would be entitled to $30,000, so the person with the larger balance might agree to give up non-KiwiSaver assets worth $15,000.

You can make this adjustment by selling the family home or car, buying out a mortgage, or dividing other assets unevenly.

This will involve negotiation, and any separation agreement must be legally binding. Both parties should get independent legal advice and will need to sign the agreement in front of witnesses.

This process can feel frustrating if you’re the one with the larger KiwiSaver balance, as while your partner may receive a cash payment to even things out, your contribution could be locked away until you reach retirement age. This can be difficult if you need money now for expenses, or had plans to retire earlier than KiwiSaver accessibility age funded by non-KiwiSaver investments.

What Happens If You Don’t Have The Money?

If your assets or cash do not meet the adjustment between your respective KiwiSavers, you can apply to the Family Court for an order allowing a KiwiSaver withdrawal.

The KiwiSaver provider will release some of the money from the account with the most funds and allocate that money to the other party.

This is also necessary if the couple cannot agree on how to divide assets in a way everyone is happy with.

This process can be costly, time-consuming, and usually requires a lawyer, as it can be complex and some KiwiSaver providers may insist on legal representation.

Related articles:

Planning For The Future

Divorce is a significant life event, impacting various aspects of your life, including your financial future.

KiwiSaver, as a retirement savings tool, plays a pivotal role in ensuring your retirement security post-divorce.

If you managed to keep your KiwiSaver intact this could give you some peace of mind for your retirement plan.

Here are some key things to ponder when planning your future:

1. Reevaluate Your Current Life and Priorities

Are you where you want to be? Are you heading in the right direction? What truly makes you happy?
Major life changes such as divorce can make you take stock and reflect. Without rushing to any conclusions, it can be a great idea to reexamine what you really want from life, including your overall goals.
As you might still be emotional, ensure you’re thinking clearly and calmly before making any big decisions. To aide this process, consult with friends, colleagues, someone spiritual (whatever that means to you), and family members. Just remember you can’t please everyone, so do whatever is right for you!
Once you’ve evaluated, or reevaluated this area in detail, you can make financial decisions, including those related to investments like KiwiSaver, far more easily.

2. Review Your KiwiSaver Account

Assess your KiwiSaver balance and any growth or losses incurred.
Review your contribution rate and consider adjusting it to align with your revised financial goals.
Evaluate your investment mix and ensure it aligns with your risk tolerance and long-term objectives.

3. Reassess Your Retirement Goals

Update your retirement age. If your divorce has significantly impacted your financial situation, you may need to reassess your planned date of retirement.
Consider how your lifestyle expectations may have changed and adjust your retirement savings accordingly.

4. Create a Financial Plan

Consult with a financial adviser (including the team here at Become Wealth!) to develop a personalised financial plan tailored to your specific needs and circumstances.
If you haven’t already, create a budget to track your income and expenses and identify areas where you can save.
If you have bad debts, set about repaying them ASAP.

5. Consider Additional Income Sources

Explore opportunities for part-time work or freelancing to supplement your income.
Look to boost your earnings by other ways: can you seek promotion or a bonus or commission at work? Can you work overtime or do more to earn more? Should it even be time to retrain or upskill in a whole new field to bolster your long-term earning potential?
Research any government benefits or programs you may be eligible for to support your financial situation.

Learn more:

6. Stay Informed and Proactive

Annually review your KiwiSaver account performance and make adjustments as needed.
Keep informed about economic trends and market conditions that may impact your investments.
Consult with financial experts for guidance and support, including the Become Wealth team.

Learn more: your financial roadmap for divorce

The Bottom Line: The Division of KiwiSaver Can Be Complex

Separation is tough and financial matters can further complicate the process.

One aspect to consider is your KiwiSaver. Understanding how it's treated during separation is essential for protecting your financial future.

Key takeaways:

KiwiSaver is generally considered to be relationship property. Contributions made during a relationship are typically divided equally.
Exceptions exist. Prenuptial agreements or separate property contributions can impact the division.
Consult with a lawyer to understand your specific situation and protect your rights.
Plan and goal set for your own long-run ambitions.

Important note: here at Become Wealth we’re financial advisers and wealth managers, not lawyers. A lawyer can help you navigate the complexities of the Property (Relationships) Act and ensure a fair division of assets. So you should always seek legal advice from a professional experienced in this area if you have questions or concerns about your situation related to anything explained on this webpage.‍