The division of relationship property is regulated by the Property (Relationship) Act 1976 (“RPA”), the intention of which is to recognise fair division of the relationship property at the end of a relationship.
There is a presumption of equal 50/50 division, unless this can be disputed or there are certain mitigating factors. Factors such as the length of the relationship, any dependent children and economic advantage and disadvantage may be considered.
A relationship is defined as a marriage, civil union, or a de-facto relationship of three or more years, although shorter relationships may also apply.
In these relationships, there can be separate property and relationship property. Relationship property includes both assets and liabilities, and is property obtained throughout the relationship which is intended for the common use or benefit of the relationship. Separate property is property obtained outside of the relationship that is not for the common use and benefit of the relationship.
Any property which either party has introduced into the relationship can become relationship property. If a contribution has been made that increases the value of separate property, it may become relationship property.
The following are some examples of separate property:
- Property that is a taonga or heirloom;
- Property that was received as a gift or through succession (as long as this have not been classified as a family chattel or home); and
- Motor vehicles can also be excluded from relationship property.
When a relationship ends, the distribution of relationship property can occur in three ways under the PRA: Mutual Agreement, Family Dispute Resolution; and Court Proceedings.
- Mutual Agreement – Commonly parties will split the property 50/50 together. If the parties have previously created a relationship property agreement(s) which is not disputed, then that agreement will outline how distribution is to occur.
- Family Dispute Resolution – This can be provided by the Family Court as another alternative, if agreements cannot be met and the parties are willing to negotiate out of Court.
- Court Proceedings – The parties may settle a relationship property dispute through the Court, leaving the Judge to decide. The Court will consider whether there should be any variation to a 50/50 split to the division of assets based on each party’s contributions. A contribution basis will apply if a two-limb test is met, the first being ‘extraordinary circumstances’ and the second being ‘unacceptable justice’. This can occur when there has been a contribution to separate property or economic disparity exists between parties.
- Contribution – An example is found in Martin v Martin, where a wife gives her husband money to assist in purchasing a farm that was previously owned by the husband and his ex-wife. Based on the wife’s contribution the Family Court disagreed with the husband who claimed the farm was separate property.
- Economic disparity – The case of C v C recognised the disparity between the parties, the wife had remained in the house paying the mortgage and property outgoings along with caring for their youngest child. Her income compared to her husband’s was substantially lower and the Family Court awarded compensation to the wife.
A prenuptial agreement (also known as a prenup, section 21 agreement, or a contracting out agreement) essentially outlines the process by which the parties have previously agreed to divide the property. The subject matter of these agreements includes the identification of separate and relationship property, the calculation of shares of the parties, and how the division would take place.
Certain requirements must be met for a contracting out agreement:
- it is to be in writing and signed;
- both parties must have obtained independent legal advice;
- signing witnessed by lawyers; and
- lawyers must explain the effects of the agreement, and provide certifications regarding the advice.
The Family Court has the discretion to invalidate a contracting out agreement or, on the other hand, validate a contracting out agreement wholly or partly. Grounds to invalidate an agreement are:
- consideration ,
- misrepresentation or mistake,
- offer and acceptance,
- form, and
- undue influence, coercion or duress
Going to court for these matters can be costly and time consuming. It is $700 for an application for a Relationship Order alone. If the application proceeds to a hearing there is a $906 fee each half day the hearing takes, this is excluding solicitors’ fees. We recommended that if you are entering or in a relationship where there is an imbalance in assets (including forecasted future assets or earnings) that you consider a prenuptial agreement, it may help to minimise disputes and costs arising when relationships and property need to be divided. You should always seek legal advice about the best option available.