When Separate Property Becomes Relationship Property
When a couple decide to separate and have been in a de facto relationship (which means living together) of more than 3 years' duration or are married or in a civil union, the division of their property will have to be resolved.
The couple will have to define what assets could be classified as 'separate property' and what property could be classified as 'relationship property'.
Separate property is defined as follows:
- "Any property that is not relationship property".
Relationship property is defined as follows:
- The family home whether acquired before or during the relationship, the family chattels, all jointly owned property, property owned immediately before the relationship began if it was acquired in contemplation of the relationship or if it was intended for the common use or common benefit of both of the partners in the relationship, or property acquired after the relationship began unless the property has been put in a trust, been gifted to the party or inherited by the party. Any increases or gains in the relationship property (subject to exceptions), any increase in the value of one of the parties' separate property if the increase is attributed to the other party through the use of relationship property or the direct or indirect actions of the other partner.
Upon parties separating it is most essential that each receive their own independent legal advice. A competent legal adviser will be able to assist parties in deciding how to classify their assets and liabilities including deciding whether property should be classified as 'separate', i.e. owned solely by the separate party or whether it is 'relationship property' therefore subject to the equal sharing provisions contained in the Property (Relationships) Act 1976.
Reclassification of Separate property
The situations where separate property becomes relationship property are covered by Section 9A of the Property (Relationships) Act 1976. The basic approach of the Courts has been that if the non-owning partner contributes to any increase in value of the other partner's separate property, then that increase is deemed 'relationship property' and thus equally shared.
A recent case concerning Section 9A and dealing with the reclassification of separate property is the decision of the Supreme Court in Rose v Rose
Facts of Rose v Rose
- Mr & Mrs Rose were in a relationship of some 25 years.
- The husband was the sole owner of a farm property known as "Cloverley".
- He farmed Cloverley with two others and inherited another farm property called "Poplars" when his father died.
- Mr & Mrs Rose separated in 2003
- The partnership between Mr Rose and the other farm partners carried on a successful wine making business at Poplars and Cloverley.
Mr Rose clearly owned Cloverley when the relationship began and because he inherited his interest in Poplars that was deemed his 'separate property'.
The Issue at Court
The issue argued at court was whether Mrs Rose was entitled to claim a share in the increase in the value of the Cloverley and Poplars property. Her claim was based on Section 9A of the Act.
Mrs Rose's lawyer argued that during the course of the marriage and relationship Mrs Rose's outside earnings combined with her duties as a home maker enabled Mr Rose to keep his farm and develop it into a vineyard. During the term of the marriage the farm was able to appreciate in value significantly. Mrs Rose's lawyers focused on Mrs Rose's contributions during her relationship with Mr Rose and argued that her contributions led indirectly to the increase in the value of Mr Rose's separate property.
In this case Mrs Rose's contributions to the increase in value were her outside earnings and her duties as a homemaker. Contributions do not have to be financial ones. Looking after the family home, or bringing up children is deemed to be a contributing factor that the Courts take into account when determining values for any division.
Outcome of Rose v Rose
The court accepted Mrs Rose's argument and she was entitled to a 40% share in the increase of the value of Mr Rose's separate property. Mr Rose was given 60% share giving him greater credit for the general increase of the land and inflation.
Contracting Out Agreements – Section 21
Contracting Out Agreements (also called Pre Nuptial Agreements or Section 21 Agreements) are the best and safest way to ensure that separate property does not become relationship property. Any such agreement needs to be compliant with the requirements of Section 21 of the Property (Relationships) Act 1976 and needs to be witnessed by each party's independent solicitor who certifies that they have provided to their client advice concerning the effect and implications of the contract. In such an agreement the parties can define those items of property that are to be classified as relationship property and those that are separate property. We strongly urge parties entering into relationships (and in particular where they have previously acquired assets or children from former relationships) to enter into an appropriate Contracting Out Agreement.
We would be very happy to assist any client seeking information about contracting out or relationship property matters in general. Please contact Michael Robinson, Partner or Jane Polson, Solicitor of this office for assistance in matters concerning relationship property.
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