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Family Trusts and Relationship Property _________________________________
“Relationship Property” or “Separate Property”
The Property (Relationships) Act provides a set of legal rules which determine whether property is relationship property or separate property and how relationship property is to be divided when a marriage, civil union, or de facto relationship ends either by separation or death.
It is possible for de facto partners and spouses to alter the rules that are set out in the Act for classifying and dividing property. To do this, it is necessary to enter into a Relationship Property Agreement (also known as a Contracting Out Agreement or a Section 21 Agreement). If there is no Relationship Property Agreement in force, then the rules contained in the Property (Relationships) Act will apply.
The Act provides that property falls into one of two categories: relationship property or separate property. The following is an overview of what type of property falls into each category.
Family Home and Chattels
The family home is relationship property.
A situation which can arise is where both parties own a house when they first meet each other and they decide to live together in one person’s house. The house that they live in becomes the family home and in the event of separation is to be divided equally between them. The other person keeps their house separate, or if they sell their house, they keep the proceeds of sale separate. This could be an unfair situation because one person has retained their house as their separate property while the other person’s house has become relationship property. The Act provides that in that situation, where either property was capable of becoming the family home, the parties’ shares in relationship property can be adjusted to compensate.
Family chattels are also relationship property. Family chattels include household furniture, appliances, garden effects, pets and cars and boats if used mainly for family purposes. Tools or other items used mainly for business purposes are not automatically treated as relationship property.
Life Insurance and Superannuation
The rule regarding life insurance and superannuation is that the portion of the life insurance or superannuation that was acquired prior to the de facto relationship or marriage commencing is separate property and the portion of the life insurance or superannuation that is built up during the de facto relationship or marriage is relationship property and to be divided equally between the parties.
Inheritances and Gifts
Inheritances, gifts and property received from a Trust are the separate property of the person who received them unless they intermingle them with other relationship property and it is unreasonable or impracticable to treat them as separate. The typical situation is where money from an inheritance is used to reduce the mortgage on a family home. The inheritance ceases to be separate property and becomes part of the relationship property pool to be divided equally.
If there have been gifts made between the partners or spouses, for example an engagement ring, then these are generally the separate property of the person who receives the item unless they have been used for mutual benefit.
A business owned prior to a de facto relationship or marriage is separate property, however, if the other party has contributed to that business, either by the application of relationship property (such as income) or they have contributed in a non-financial way (such as looking after children thereby enabling their partner to work in the business), then they may have a claim for compensation for that contribution.
Income such as wages or salary earned during the period of the de facto relationship or marriage is relationship property.
To the extent that money in any bank account or on investment represents income earned during the period of the relationship, then the bank account or investment will be relationship property.
Debts that have been incurred for family purposes are relationship debts which are to be paid by the parties equally. Debts that have been incurred for individual purposes, the classic situation being a student loan, is the separate debt of the particular individual.
For more information on this product please contact Cathy Fisher on firstname.lastname@example.org and (09) 915 2412.