RELATIONSHIP PROPERTY AGREEMENTS
The Property (Relationships) Act (“the PRA”) applies to:
- married couples;
- couples who have had a civil union; or
- de facto couples, and whose relationship has endured for more than 3 years.
It provides the regime for classifying and dividing property at the end of the couple’s relationship, whether through separation or death. It automatically governs the property rights between the parties to a relationship UNLESS they have contracted out of the PRA. The PRA establishes an “opt out” regime.
Unless the parties have “opted out”, on separation their relationship property is divided equally. That sort of outcome may be less than desirable for some couples. Particularly for those who have had prior relationships and wish to protect assets for themselves or their children, it is important to “opt out”.
Section 21 of the PRA gives couples, as well as intending couples, the right to make any agreement they wish for the purpose of opting out of the PRA with respect to the status, ownership and division of their property whether it is existing property or future property. Couples opt out by entering into a section 21 contracting out agreement. An agreement can classify property and how spouses and partners will settle any property disputes between themselves. Importantly, the contracting out regime cannot be used to defeat the rights of creditors.
An agreement may deal with all of a couple’s property or it may deal with specific items.
One of the things that can be included in a contracting out agreement is whether the couple will be bound by the terms of each other’s Wills, or whether they may challenge those Wills when one of them dies.
Form and Requirements
While a contracting out agreement does not need to be in any particular form, it must comply with certain procedural requirements. If these requirements are not complied with then the agreement may be set aside. Those requirements are:
- The agreement must be in writing and signed by both parties;
- Each party to the agreement must have independent legal advice before signing the agreement;
- The signature of each party to the agreement must be witnessed by a lawyer; and
- The lawyer who witnesses the signature of the party must certify that, before the party signed the agreement, the lawyer explained to that party the effect and implications of the agreement.
Independent legal advice must be truly that. Lawyers must be from different firms. The advice must be quality advice. The Courts have described this advice as requiring an explanation of the agreement AND advice on the assessment of a party’s entitlement under the PRA, AND the implications of the terms of the agreement must be explained as well.
Setting aside an agreement for serious injustice
In 2002, Parliament amended the PRA and increased the stringency of the test that the Courts are to apply when considering whether a contracting out agreement should be set aside. Previously, the test was that enforcement of an agreement would cause injustice. Now, the test is one of serious injustice. That is a high threshold to meet.
It is important that the terms of an agreement are revisited over time. It is impossible to anticipate every event that might occur and change circumstances and it may be that over time the terms of an agreement need to be addressed.
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