Relationship Property

Even more reason to have a Relationship Property Agreement

Transferring your assets to a trust even before you are in a de facto relationship, does not prevent those assets from being clawed back as relationship property. That is the outcome of the 2021 decision of Sutton v Bell.

In March 2004 Joanna Bell moved in with Todd Sutton at his house in Pt Chevalier. They were flat mates but slept together. They were aware that if their relationship became permanent and they lived together for 3 years, the Pt Chevalier property would become relationship property. Joanna suggested to Todd that he put the Pt Chevalier property into a trust to ensure it was considered his separate property and not the family home.

At the end of 2004, Todd transferred the property to a family trust. A month or 2 later, they became a de facto couple as defined under the Act (they presented to family and friends as a couple rather than as friends with benefits, they holidayed together, emailed about household chores and so on).

Their de facto relationship lasted for nearly 8 years. After separation, Joanna claimed that the transfer of the Pt Chevalier property to the trust should be set aside thereby giving her a half interest in the Pt Chevalier property. Joanna argued that Todd had transferred the property to a trust in order to defeat or avoid her relationship property entitlements. Todd argued that their de facto relationship had not commenced when he transferred the Pt Chevalier property to the trust and therefore he could not have intended to defeat Joanna’s entitlements.

The Court observed that a person should not be able to dispose of their property the day before commencing a de facto relationship. On the other hand, disposing of property in the early days of a relationship should not be vulnerable to attack. In Joanna and Todd’s case, the Court found that the transfer occurred when Joanna and Todd were “in comtemplation” of a de facto relationship. They had a clear and present intention to commence a de facto relationship when the transfer of the property was made, with their relationship showing signs of permanence. The Court therefore set aside the transfer to the trust and allowed Joanna’s claim to a half interest in the property.

This case highlights the importance of Relationship Property Agreements. If Todd had entered into a Relationship Property Agreement instead of, or in addition to, transferring the property to the trust, the property would have stayed out of Joanna’s reach.