The Property (Relationships) Act
Are you entering a new relationship?
As you may know, couples who separate after being married, in a civil union or defacto relationship for three years usually have to share the house, car and furniture 50/50 with their ex-partners. The Property (Relationships) Act 1976 determines how property is divided in this situation.
As for short term marriages and civil unions of less than three years duration relationship property may be divided according to each persons contribution to the relationship, (including non-financial contributions) rather than being shared equally.
Short term defacto relationships in most cases (except where there are children of the relationship) are not covered by the act and the ordinary rules of property ownership will usually decide what each person is entitled to.
Rules for Dividing Property
The usual rule where a couple has been together for at least three years is that certain property, known as relationship property, is divided equally, even if one of you owned the property before you entered the relationship.
Separate property, on the other hand, usually stays with the person who owns it. For example gifts and inheritances that either of you have received while you are in the relationship are separate property unless those gifts or inheritances are intermingled with relationship property, for example, inheritance money is used to pay off the mortgage on the family home.
Example: Jane inherits her parents' farm. Jane's boyfriend Richard moves in with Jane and they live in what was the farm manager's house.
Richard does not have a job but works on the farm - milking, fencing, spreading fertiliser and carrying out ongoing maintenance. He also carries out substantial renovations to the house improving its value significantly. Richard does all of this for nothing as he plans a long and happy life together with Jane. After 10 years together Jane and Richard's relationship hits the rocks and they decide to separate.
It is likely that Richard would be entitled to a greater share of the relationship property or to be compensated by Jane for the time and investment Richard has put into the house and farm (both monetary and non-monetary contributions can be taken into account).
What about a pre-nuptial agreement?
Yes, there are ways you can avoid having to divide the property 50/50 by entering into a contracting out agreement before your relationship comes under the provisions of the Act. A contracting out agreement can be made at any time during the relationship.
Even after the relationship ends, you can agree with your partner to divide property otherwise than 50/50.
If you wish to enter into a contracting out agreement, it is prudent to enter into the agreement during the relationship and before the three year time period is up.
The transfer of relationship property to a trust to protect it is likely to be ineffective. The transfer of separate property to a trust is more likely to be effective if the trust is run properly. There are special rules that apply to family homes owned by trusts that may allow the court to compensate the partner that misses out as a result of the home being in a trust.
It is important to ensure that your property rights are protected if you are entering a relationship. You should discuss these issues with your lawyer who can help you put measures in place to protect you and your property.
The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document.
If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser.