The Property (Relationships) Act 1976 sets out what should happen to a couple’s assets when they separate or one of them passes away. It affects how you should make your will, and you should also take it into account before receiving an inheritance.

About the Act

The Act provides for relationship property to be divided equally between the partners unless there are extraordinary circumstances, but people can also have separate property. A couple can also decide to contract out of the Act by making their own private agreement (see contracting out or Relationship Property Agreement). The Act sets out the requirements for how this can be done.

What kinds of relationships are covered?

The Act covers marriage as well as civil union and de facto relationships that last 3 years or more, although there are also provisions for some shorter relationships.

De facto relationships

A de facto relationship is where two people over 18 live together as a couple but are not married or in a civil union. It includes same sex couples. If the status of the relationship is not clear, the court will decide and take into account things such as:

• how long you’ve been together and how committed you are to a shared life

• whether you share a home and how you share tasks and costs

• your financial and property arrangements and the care and support of any children

• whether you have a sexual relationship and whether others think of you as a couple.

Short-term relationships

There are special rules for marriages or civil unions that last under 3 years. If you separate, any time you were in a de facto relationship before the marriage or civil union also counts.

De facto relationships that last under 3 years are not usually covered by the Act, although the court can make an exception if you have a child or one of you made a substantial contribution to the relationship. Any division is usually based on the financial and non-financial contributions made by each partner.

A child includes a child born to the couple as well as any child of either parent who lived as part of the family at the time the relationship ended, so this can include stepchildren, foster children and other children.

What is relationship property?

The Act makes a distinction between relationship and separate property. In simple terms, if the relationship ends, relationship property is divided while separate property remains your own.

Relationship property includes:

• the family home and belongings, regardless of when they were bought or whose name they’re in

• any assets bought for your shared use and benefit

• all income earned and property bought since the relationship began

• any increase during the relationship in the value of superannuation or life insurance plans.

Separate property is anything else, including:

• assets you agree are separate property under a contracting-out agreement

• inheritances and gifts, assets you owned beforehand and assets you buy with separate property – providing they are kept separate and not used for the benefit of the relationship.

Debts can be relationship or separate property. It depends on how the loan was used. For example, a student loan taken out by one partner and used for joint living costs may count as a relationship debt.

Separate property

Separate property can become relationship property (unless protected by a contracting-out agreement) if it’s used to benefit both parties or it becomes intermingled, for example, if you use an inheritance to buy a family home or a car.

Any increase in value in separate property during your relationship can also become relationship property if your partner has contributed to the increase (which can include indirect contributions such as staying home to look after children so you can work) or if you’ve used relationship property to increase the value, for example, by using your household income to improve a rental property.

Trust or company property

You can’t transfer assets to a trust with the intention of trying to stop your partner at the time getting their share of the relationship property if you split up or you pass away. If you do, the court can declare the transfer invalid. If your intentions can’t be proven, the court can order some other type of compensation so your partner gets their share. For example, they can order that other separate or relationship property is given to the partner to equalise things or that a payment is made to them to equalise the division of assets.

Similar provisions exist if you move assets to a company you control to try and stop a partner sharing relationship assets. If you are in a relationship, even one under 3 years, you should make a contracting-out agreement with your partner before you transfer assets to a trust or company.

Contracting-out agreements

You and your partner can make a private arrangement rather than share your assets according to the Act. For example, you can agree between you what is separate or relationship property and what happens if you split up or one of you passes away.

This is also called a Relationship Property Agreement, and is sometimes referred to as a "pre-nup".

You can make this agreement at any time, even after the relationship ends. It must be in writing, signed by both of you and witnessed and certified by lawyers acting on behalf of you and your partner.

For a contracting-out agreement to be valid, it is a requirement that you and your partner must each have their own separate lawyer. If there are any issues with how the agreement was entered into, the court can declare the agreement invalid if it decides letting it stand would cause a serious injustice.

What if one of you passes away?

The other partner can apply under the Act for their share of the relationship property (option A) or accept the will as it stands (option B). The choice must be made within 6 months or option B automatically applies. If the other partner chooses option A, all property is presumed to be relationship property unless there is contrary evidence.