Relationship / Family
THE PROPERTY (RELATIONSHIPS) ACT 1976 ("THE ACT")
The Act applies to all marriages, civil unions and de facto relationships. The Act deals with the division of property upon the end of a relationship whether that be through death or separation.
Under the Act property is divided into two categories:
1. Relationship Property
This is generally all the property acquired during the relationship. This includes the family home and family chattels whenever they are acquired, and any common or jointly owned property. Income earned from personal exertion is also "relationship property". Relationship property is normally divided equally between partners.
2. Separate Property
Generally this includes inheritances and gifts, unless they have become intermingled or used for the "common purpose and benefit" of the family, or the assets acquired from an inheritance are placed in joint names.
- If a cash sum is received as an inheritance and is used to reduce a mortgage debt over the family home this would become "relationship property".
- A holiday property or car received as an inheritance, or if those items are bought from a cash inheritance and that car or holiday property is then used by the couple and family, it will become "relationship property".
CONSEQUENCES OF AN INHERITANCE BECOMING RELATIONSHIP PROPERTY
If you use your inheritance to pay off relationship debt or acquire relationship assets, upon the end of your relationship that inheritance will not come back to you but will normally be shared equally between you and your spouse/partner.
It is not possible to convert these assets back to your separate property.
HOW CAN I PROTECT MY INHERITANCE?
There are two ways you can protect your inheritance:
1. Contracting Out Agreement
This is an agreement that both you and your partner sign agreeing to contract out of the terms of the Act. The agreement can deal solely with your inheritance, that is your spouse/partner agrees your inheritance will remain as your separate property even if it is used for relationship purposes. If it is appropriate, you may want to extend this to an agreement that deals with all your assets.
To be valid, this agreement must be signed and witnessed by both parties and each party must receive advice from their lawyer. The lawyer must also certify that they have advised you.
A contracting out agreement can only be set aside if giving effect to it would cause "serious injustice" to one of the parties or the Court is satisfied that either party was not properly advised as to the effects and implications of the agreement.
If your inheritance is significant for you and/or you want certainty that it remains your separate property, we would recommend a contracting out agreement.
2. Maintaining the assets separate from your relationship assets
(a) Separate bank account
You open a bank account in your own name. This account is used to lodge your inheritance funds and to deposit interest, dividends, repayments from any investments you have received from the inheritance. Funds from this account can be used to purchase items used by the couple/family, which then become "relationship property". The original investments or cash, if preserved in your sole name are identifiable as separate property if a relationship break-up occurs and the couple cannot agree on the classification of property.
This account must not be used to deposit funds received from your wages, salary and/or income from your work as this will intermingle it with "relationship property", potentially causing the whole account to become "relationship property".
(b) Not using assets for relationship purposes
This would involve keeping assets you have inherited quite separate, so any assets you have inherited cannot be used for relationship purposes. None of your salary/wages/cash can be used to maintain or support these assets. Also, your spouse/partner must not undertake any work on the assets, for example, painting or renovating. The occurrence of any of these events could result in the assets losing their separate property status.
Preserving an inheritance can be achieved without an agreement but it involves planning and a degree of discipline. A contracting out agreement will provide certainty.
Please note, if you have "preserved" your inheritance your will must also provide for this. Receiving an inheritance is a good time to do a review of your own estate planning arrangements.
If you would like more information on this article or have any queries please contact the author of this article.
The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.