A recent Court of Appeal case provides some insights into the relationship between contracting out agreements and estate administration.

A man passed away in 2016 without leaving a will. He was survived by his de facto partner and two adult children. There was a dispute between the surviving partner and the two children about how the deceased’s estate should be divided, and particularly whether the surviving partner could receive a share under the intestacy law.

In 2002, the couple had entered into a contracting out agreement under the Property (Relationships) Act. The agreement identified their separate property and relationship property and gave the surviving partner the right to live in the real property of the survivor for life when the other passed away.

Division upon death

Under the Act a surviving party generally has two options when their relationship ends upon the other party’s death.

Choosing Option A means the surviving party will make an application for a division of relationship property.

By electing Option B the surviving party may become entitled to receive benefits under the Will of the deceased, or to a beneficial interest on the intestacy of the deceased if there was no Will.

In the present case, the contracting out agreement did not prevent the surviving partner choosing Option B, and when her partner died, the survivor elected that Option.

This means that she would not apply for a division of relationship property but would instead take her entitlements under intestacy. The children argued that she was not entitled to anything from the estate because she had given up all such rights under the contracting out agreement.

The central issue before the Court was whether the agreement stopped the surviving partner from receiving her share under the Administration Act 1969, which governs how property is distributed when someone dies without a Will.

The children claimed that the agreement completely barred the partner from inheriting property. The surviving partner argued that the agreement only governed how their property was to be divided between them if they separated when alive, not what would happen under intestacy.

The Court decided in favour of the surviving partner. The key reasons were:

The terms of the contracting out agreement did not exclude intestacy rights.

The Court said clear and specific wording is needed if a couple intends to waive rights under the Administration Act. The agreement in this case did not contain such wording.

Option B was correctly chosen.

Option B allows the surviving partner to take their share under a Will or under intestacy, rather than seeking division under the Act. As the couple had already contracted out of the Act, Option B was appropriate.

The contracting out agreement’s focus was limited.

The agreement defined what was relationship property and what was separate property and gave the survivor lifetime occupancy of the home. It did not specify anything about giving up inheritance rights.

The surviving partner was entitled to her full share under the Administration Act. This included personal chattels, the $155,000 amount set out in the Act plus interest, and one-third of the remaining estate. The children receive two-thirds of the remaining estate between them.

The Court confirmed that the contracting out agreement did not prevent the surviving partner from inheriting under intestacy. To remove such rights, the agreement must use clear, explicit wording showing both parties understood they were waiving any entitlement under the Administration Act.

Key takeaways

Be explicit when drafting contracting out agreements

If a couple wish to exclude each other from inheriting under intestacy, the agreement must clearly say so. Otherwise, the surviving partner will generally still benefit from the statutory intestacy provisions.

It is important to make Wills even if a contracting out agreement exists

Contracting out agreements do not deal with all circumstances upon one partner’s death. It is therefore important to make Wills to avoid any future disputes regarding either party’s estate.

Administrators should exercise caution

When administering an estate involving a contracting out agreement, an administrator should make sure both the contracting out agreement and the intestacy law are respected.

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