Relationship Property And Contracting Out Agreements And Pre-nuptial Agreements

The Property (Relationships) Act 1976 (“the Act”) sets out the rules as to what is relationship property, what is separate property and how property is to be divided in the event of separation or death.  The equal sharing regime is the underlying fundamental principle of the Act and it applies to married, de facto and civil union couples of three years duration or more.  Married, de facto and civil union couples who have been together for less than three years are usually not covered by the equal sharing rules.

Couples may however choose to make their own rules as to what is their relationship property, and what is their separate property, or how they wish their property to be divided in the event of separation or death.

To do this a couple will enter into a Contracting Out Agreement or a Pre-Nuptial Agreement.

Contracting Out Agreements (or pre-nuptial agreements) are entered into during the course of a relationship.  Often these Agreements are sought by clients who have a disparity in financial resources, or it is their second marriage/de facto relationship and they wish to preserve property for their respective children.

If a couple chooses not to opt out of the Act, then after three year’s duration equal sharing will apply.  For existing relationships, the approach of the three-year anniversary should be a time for reviewing the commitment to each other, but also the legal and financial implications of continuing the relationship.

For an Agreement to be valid:

  • The agreement must be in writing;
  • Each party to the agreement must have independent legal advice before signing the agreement;
  • The signature to each party must be witnessed by a lawyer;
  • The lawyer who witnesses the signature of a party must certify that before signing the lawyer explained to the party the effect and implications of the agreement.

If an agreement does not comply with the above requirements, then it will not be legally binding and therefore ineffective.

Usually a Contracting Out Agreement or a Pre-Nuptial Agreement will record the parties circumstances prior to signing the Agreement i.e. the background to the Agreement; property owned by each party at the date of the Agreement; confirmation that the parties wish to contract out of the Act; details of what property is to be kept separate; details as to what property is to be joint; rules governing joint property such as the family home and what is to occur on separation e.g. sale of home and proceeds split equally; what occurs if separate property is intermingled with relationship/joint property; whether the agreement applies in the event of separation or death or both.

Contracting Out Agreements may also include clauses such as a ‘sunset’ clause, which provides for the agreement to lapse after the expiration of a period of time or a review clause for the agreement to be revisited after the expiration of a period of time.

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