The division of relationship property is regulated by the Property (Relationship) Act 1976 (“PRA”). The purpose of the PRA is to set out some rules for the fair division of relationship property at the end of a relationship.
There is a presumption of an equal division of relationship property. However, factors such as the length of the relationship, any dependent children and economic advantage and disadvantage may alter the outcome.
A relationship is defined as a marriage, civil union, or a de-facto relationship of three or more years. Shorter relationships may also apply.
In 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 separate property that 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 examples of separate property:
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property that is a taonga or heirloom;
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property that was received as a gift or through succession (as long as this has not been classified as a family chattel or home); and
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motor vehicles can also be excluded from relationship property.
When a relationship ends, the distribution of relationship property can occur in three ways: Mutual Agreement, Family Dispute Resolution; and Court Proceedings.
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Mutual Agreement – Parties can agree to split the property 50/50 or on some other basis. If the parties have previously created a valid contracting out agreement, then that agreement will outline how distribution is to occur.
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Family Dispute Resolution – This can be provided by the Family Court as an alternative process for resolving disputes if agreement between the parties cannot be reached and the parties are willing to negotiate out of Court.
- Proceedings – The parties may submit a relationship property dispute to the Court for a Judge to decide. The Court will consider whether there should be any variation to a 50/50 split 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.
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Contribution - An example is found in Martin v Martin. A wife gave 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 his separate property.
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Economic disparity – The case of C v C recognised the economic 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 for this disparity.
A contracting out agreement (also known as a ‘prenup’ or ‘section 21 agreement’) outlines the process by which the parties have previously agreed to divide their property if they separate. These agreements include the identification of separate and relationship property, the calculation of shares of the parties, and how the division would take place.
Certain formal requirements must be met for a contracting out agreement to be valid and enforceable:
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it is to be in writing and signed by both parties;
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both parties must have obtained independent legal advice;
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signing witnessed by lawyers; and
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lawyers must explain the effects of the agreement, and provide certifications regarding the advice.
The Family Court has the discretion to ‘set aside’ a contracting out agreement where:
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a party lacked mental capacity to enter into the agreement,
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a party entered into the agreement based on a misrepresentation or mistake,
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the agreement would result in serious injustice to one party,
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the formal requirements for a valid agreement have not been met, and
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a party has been induced to enter into the agreement under undue influence, coercion or duress.
Going to court for these matters can be costly and time consuming. We recommended that if you are entering into or you are already in a relationship where there is an imbalance in assets (including forecasted future assets or earnings) that you consider a contracting out agreement. It may help to minimise disputes and costs if the relationship ends and property needs to be divided. You should always seek legal advice about the best option for you.