The Property (Relationships) Act 1976 (Act) sets out how the property of spouses, civil union partners, and parties to a de facto relationship (Partner) is to be divided when they separate or one of them dies. One of the key presumptions is that relationship property will be divided equally. However, Partners are not stuck with the Act. They can contract out by entering into an agreement in accordance with Part 6 of the Act (Contracting Out Agreement).
What is a Contracting Out Agreement?
A Contracting Out Agreement is the only legally binding way for Partners to divide their property in a manner other than as set out in the Act. With a Contracting Out Agreement, Partners can reach any agreement they think fit regarding the status, ownership, and division of their property (including future property). Partners can do so at any time, including before the relationship commences, during the relationship, and after separation.
Such agreements go by many different names. Depending on the context, they can be referred to as relationship property agreements, property sharing agreements, separation agreements, or pre-nuptial agreements, which refer to Contracting Out Agreements made in contemplation of a marriage. The name does not really matter. What matters is that the agreement complies with the requirements of 21F of the Act.
The Section 21F Requirements
A Contracting Out Agreement is void if it does not comply with the requirements of section 21F of the Act. Those requirements are as follows:
- The agreement must be in writing and signed by both Partners.
- Each Partner must have independent legal advice before signing the agreement.
- The signature of each Partner must be witnessed by a lawyer.
- The lawyer who witnesses the signature of a Partner must certify that, before that Partner signed the agreement, the lawyer explained to that Partner the effect and implications of the agreement.
These requirements mean that Partners cannot enter into a legally binding Contracting Out Agreement without the involvement of independent lawyers on both sides. While this can increase the legal costs involved when compared with other types of agreements, the requirements are ultimately designed to protect the Partners and ensure they make an informed decision.
If the section 21F requirements are not satisfied, the Court can still give effect to a Contracting Out Agreement if the non-compliance did not materially prejudice the interests of any Partner. However, this would require litigation and incur significantly more costs than if the requirements were met to begin with.
Disclosure
To properly understand the effects and implications of a Contracting Out Agreement, each Partner should have some idea of the financial position of the other Partner. Without that, it is difficult, maybe even impossible, to understand what each Partner might be giving up by entering into the Contracting Out Agreement.
Lawyers will usually recommend, and some will insist, that both Partners disclose their income, expenses, assets, and liabilities to each other before signing a Contracting Out Agreement. The process is completed by the exchange of statements, valuations, and other documents that demonstrate the financial positions of the parties.
Advantages of a Contracting out Agreement
A Contracting Out Agreement offers numerous advantages. These include the ability to decide in advance how property is to be dealt with after separation, thereby providing clarity and certainty for Partners.
Even if Partners are comfortable with a 50/50 split of their property, a Contracting Out Agreement avoids the uncertainties and additional costs that could arise if the matter was left for resolution under the Act.
Some examples of what the Agreement can protect you from are as follows:
- Protecting a property from being treated as the Partners’ family home, in circumstances where one Partner owned the property before the relationship.
- Protecting you from taking on an equal share of liability for your Partner’s debts.
- Keeping any assets or income as separate property, rather than relationship property that would be divided under the Act.
The benefits of Contracting Out Agreements are not just for rich people with substantial assets. They are for any Partners who wish to have a certain and cost-effective way of dividing their property on separation.
Setting Aside a Contracting Out Agreement
The Court can set aside a Contracting Out Agreement even if it complies with the requirements of section 21F of the Act. The test is whether the agreement would cause serious injustice. This is a high standard.
An example of serious injustice might be where one Partner conceals assets from the other Partner during disclosure, so as to create a misleading impression of their financial position. This highlights the importance of proper disclosure when making Contracting Out Agreements.
Contracting Out Agreements can also become seriously unjust through the passage of time or a change of circumstances, even if they were fair and reasonable when made.
Review of Contracting Out Agreements
To avoid a Contracting Out Agreement becoming seriously unjust over time, it should be reviewed regularly, at least every three to five years. Partners should make sure the terms have not become unfair or unreasonable or no longer reflect the relationship.
The Role of the Lawyer
Contracting Out Agreements are one of the few legal documents that can only be entered into with the help of a lawyer. As such, the lawyer’s role is key.
The lawyer is there to help Partners understand their rights under the Act, assist with disclosure, negotiate, prepare, and advise on the form and content of the agreement, and attend to the witnessing and certification duties set out in section 21F of the Act. The lawyer can also assist Partners after the Contracting Out Agreement is signed, including by regularly reviewing the agreed arrangements to ensure they remain suitable.
Evolution Lawyers
At Evolution Lawyers, we have an expert team of experienced family lawyers. We can assist with all aspects of Contracting Out Agreements.
If you need advice about a Contracting Out Agreement, please contact us using the form below.