Keeping it in the family – Parental gifts and the impact of the relationship property regime…

In a Family Court decision, a home purchased by parents as a gift to their child was open to a successful relationship property challenge from that child’s de facto partner on the basis it was a “family home” and therefore subject to equal division.

Under the Property (Relationships) Act, the “family home” is usually considered relationship property.  That means, if the relevant relationship is three years duration or more (being a de facto relationship, civil union, or marriage) then the starting point on separation is that all relationship property, including the family home, is divided equally between the parties to the relationship.

This position applies regardless of how or when the home was acquired.  To be a “family home” a property simply needs to be used as one and owned by one or both of the parties.

This position may be problematic for parents who gift property to a son or daughter and later find that their child is in a relationship that would invoke the relationship property regime (for example a de facto relationship).

To protect against this possibility, many have used Family Trusts as a form of protection.  However, recent cases in the area illustrate that increasingly this may not be enough to prevent a claim being made.

Where Family Trusts are used to protect property, there are several factors which can effect whether the Trust provides the intended asset protection.  In particular, it is important for the Trust Deed to be carefully drafted and for the Trust to be administered properly over time.  If that is not the case then the Trust may not be providing the protection you think it is.

While there are many ways to protect property, in many cases the best way to protect a property against any claim from a partner, is to encourage your son or daughter to enter into a Contracting Out Agreement with their partner.  This will clarify that the parties have agreed that the general rules set out in relationship property legislation will not apply on separation.  This might be only in relation to the home they live in, or in relation to other property they own as well.  An agreement of this nature can record that some other agreed division will apply in the event of separation.

In order to be binding, a Contracting Out Agreement will need to be in writing, signed, with each partner’s signature witnessed by their independent solicitor (different lawyer from a different firm), and their independent solicitor certifying that they have advised that party on the full effects and implications of the agreement.  The certification process aims to ensure that parties entering into these agreements, do so on an informed basis.