Despite a lot of publicity, many people are still unaware that when a couple enters into a de facto relationship of 3 years or more, the home they live in automatically becomes relationship property by virtue of the Property (Relationships) Act 1976 (“The Act”).I have had people with all sorts of ideas of the time frame, from one year to five years.
What this means in practice is that a person who may have inherited a family home, or kept the family home after a previous separation, stands to lose at least half of it in the event of a future separation.
A common scenario involves someone who has retained the family home after a lengthy relationship (often a marriage) has ended. They enter into a new relationship. They may have no idea that their new relationship is capable of being defined as a de facto relationship, and have therefore not considered that their cherished family home might be claimed by their new partner.
Time is against them once the new relationship is three years old. The new de facto partner can then claim half the family home, which may have been intended for children or grandchildren. The only way out of this problem is to use Section 13 of the Act and claim that there should be an exception to the equal sharing provisions of the Act, because there are extraordinary circumstances that make equal sharing repugnant to justice. However, the Courts have made it clear that the circumstances do indeed need to be extraordinary for this section to apply.
If the circumstances are common, run of the mill, or even where they are unusual but still not extraordinary, the Court is unlikely to direct unequal sharing. What this all means, is that someone thinking about entering into any sort of relationship with another person who doesn’t want their family home to fall into the “common pot”, should take steps to avoid this. One option is to put the home into a family trust, but the trust would need to have been formed prior to the start of the relationship beginning to avoid any claims a partner may have for compensation under the Act. If a partner can show that the transfer of the home to the trust was made “in order to defeat the claim or rights” they would have had if it was not for the transfer, the Court can order compensation to be paid.
Further, if a partner is able to show that the transfer of property was done after the relationship began, and that the transfer has had the effect of “defeating the claim or rights” that they would have had, then the Court is able to order that the party who owned the property must pay compensation to the non‐owning partner. Another option is to enter into a Contracting Out Agreement in the early stages of the relationship (see the article below).
Perhaps the best advice we can give is to do something, be it a family trust, a contracting out agreement or another option. Sit back and do nothing and you could find yourself sharing the home you have worked hard for all your life with that “not so special” someone else. If you would like more information, please contact Kathryn Walker.
Contracting Out Agreements (sometimes called pre nuptial agreements)
I am seeing more clients who are having trouble dividing up their assets upon separation. For some people dividing assets equally is just not fair. Put simply, the best time to work out who gets what if you separate is while you are still in a happy and committed relationship. Clients will sometimes say that they just don’t know how to raise the topic with their partner without it seeming as though they think the relationship is on the rocks. I usually suggest that they think about the agreement like an insurance policy.
No doubt your house is insured for fire and yet very few houses burn down. Statistically lots of relationships end up on the rocks. In essence, the agreement contains a list of assets that you would each want to keep in the event of a separation. More complicated agreements can allow for a formula for the division of property where the property may have changed in value. An agreement can be really valuable where one of the parties already owned substantial assets before entering into the relationship. To be legally binding, agreements must be in writing and signed by both parties. Each party must first receive independent legal advice and must sign the agreement in front of a solicitor.
A properly completed Contracting Out Agreement is treated with respect by the Courts and will general only be overturned on the grounds of “serious injustice”. The agreement is a relatively straightforward and cost effective way to ensure that, where it is appropriate to do so, specified property remains protected for the individual. If you would like more information, please contact Kathryn Walker.