Changing Time - Proposed Amendments to Division of Relationship Property
Topics covered in this article: Family Law, Home Owners, Property
As society changes, so too should the laws that govern our society – particularly those that govern one of the most intimate aspects of our lives: de facto relationships, marriages and civil unions. The Property (Relationships) Act has been in force since 1976 (although it was amended in 2002) and sets out the rules for how property is divided when parties separate or one party passes away. What was once forward thinking legislation has now become outdated and can often lead to the unfair division of relationship property between separating couples. The Law Commission recently reviewed the Property (Relationships) Act 1976 (“the Act”) and has made recommendations to the Government for how the Act should be reformed. While the fundamental elements of the Act are still relevant, for example the general principle of equal sharing of relationship property after three years, many other aspects are not.
One of the key changes proposed by the Commission is the classification of the family home. Presently, the family home is regarded as relationship property if the parties were living in the home at the date of separation and the parties had been in a qualifying de facto relationship for three years or more (subject to certain exceptions). The family home is subject to equal sharing regardless of contributions or if one party owned it prior to the relationship. The proposed changes would see the property only classified as relationship property if the property was acquired by either partner for the parties’ common use or benefit or if the property was acquired during the relationship. This means that if the property was owned by one party before the relationship was contemplated, it would be regarded as that party’s separate property. However, any increase in value of the property from the date the relationship commences will be regarded as relationship property to be shared equally between the parties on any separation. If the property was sold and the funds applied to purchase a new home, then the new home will be regarded as relationship property in which the parties are entitled to share equally. The only way to protect the funds contributed to the purchase of the new home during a relationship or to ensure that the increase in value is not regarded as relationship property, is by entering into a Contracting Out Agreement.
Trusts have long been used for asset protection, not only from creditors but also from the equal sharing provisions under the Act. Currently, it is difficult and costly to access assets held by a Trust and the Act does not always provide adequate tools to ensure equality between parties in this situation; parties are often required to seek remedies outside of the Act. The Commission recommends that the current provisions under the Act that deal with dispositions of relationship property to a Trust be broadened. The intention is that the Family Court will be given wide reaching power if the following has occurred:
- Separate or relationship property has been disposed of to a trust when the relationship was contemplated, during the relationship or after the relationship and it has the effect of defeating a claim or right under the Act; or
- Trust property has been sustained or enhanced by either the application of relationship property (i.e. income) or the actions of the non-owning partner.
Essentially, if the proposed amendments come into effect, it will be easier to claim against property held in a Trust and for the partner who does not have an interest in the Trust to seek recognition for their contributions during the relationship. As with the family home, the only way of avoiding this outcome is to enter into a Contracting Out Agreement, which allows the parties to the relationship to contract out of the provisions of the Act and instead come to their own arrangements and agreements as to how their respective assets should be shared (or not shared as the case may be) in the event that their relationship comes to an end.
Following the writing of this article, the Government has decided not to progress the Law Commission’s recommendations until a review of succession law (i.e. the rules applying to relationships that end on death) is undertaken. While this will delay the implementation of the recommendations discussed above, it is our view that the changes are likely to be implemented. It is accordingly important to turn your mind to the upcoming amendments when considering property rights within the context of a de facto relationship, marriage or civil union.
Updated: 11th December 2019