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March 2011

What's yours is ours

The risks of failing to “Contract-Out” of the Property (Relationships) Act 1976

The Property (Relationships) Act 1976 (“the Act”) sets out the rules governing the division of relationship property. The Act provides that where parties enter into a de-facto relationship, marriage or civil union that last more than 3 years, they are each entitled to an equal share in the relationship property pool.

What’s ‘yours’ is ‘ours’.

In our rapidly changing world, it is becoming increasingly common to enter into second marriages and/or relationships with people who have children from previous relationships.

However, many people fail to consider the fact that when one or both partners own assets prior to the new relationship commencing, steps should be taken to protect those assets. Without protection, those assets may be incorporated into the relationship property pool, and that which was intended to be “yours” now becomes “ours”.

Let’s take a fairly typical scenario:

Partner A and Partner B enter into a de-facto relationship. A’s only substantive asset is a house A purchased before A met B. B has no substantive assets and also has adult children from a previous relationship. A and B live in A’s house during their relationship. After 5 years together, B dies. In B’s will, B leaves everything to her children.
On the face of it, it appears that B’s estate is worth very little. However, the executor of B’s estate may apply to the Court for a division of relationship property under the Act. By virtue of A’s house being used as the parties’ primary residence, it is now deemed to be the “family home” and therefore “relationship property” as defined in the Act. The Court may now award B’s estate up to half of the net value of the family home. This may be a result that B never intended. In fact, it may be more dire than that. B may have said to A that B would never claim for a share in the home – in a sense, B hasn’t but B’s estate has.

But that’s not what I wanted to happen!

In a nutshell, this potentially allows B’s estate to claim up to half of the house, even though A owned the house before the parties’ relationship began. B’s estate is therefore now solvent and A’s ‘nest-egg’ has been diminished by up to half. 

So what should you do?

  • The reality is that family dynamics are changing. Unless you take steps to protect your assets, there is a risk that your share in the same will be diminished by up to half.

  • If you are entering into a new marriage, civil union or de facto relationship, think about signing a Contracting Out (or “pre-nuptial”) agreement. Contracting Out Agreements set out how your property will be divided should your relationship end (for any reason), and will only be set-aside for “serious injustice”.

  • Contact us now to discuss your options!