Jack and Jessica had been in a de facto relationship for almost 20 years before separating.  They agreed upon the division of their property and entered into a relationship property agreement formally recording that division. 

As required by law, they both received independent legal advice as to the effects and implications of the agreement, and signed the agreement with their independent lawyers.

The agreement recorded, amongst other things, that Jack would retain a coffee shop valued at approximately $300,000; Jessica would have a home for herself, and Jack would contribute 7/8ths of the coffee shop profits towards mortgage repayments for Jessica’s home until the coffee shop could be sold. 

Following the signing of the agreement, unfortunately the coffee shop decreased in profitability, and in value by approximately $50,000, and Jack was left in a position where it was difficult for him to meet his financial obligations under the agreement. 

In the new circumstances the agreed relationship property division equated to approximately an 80:20 split in favour of Jessica.

These were the facts of a recent case in which the High Court found that giving effect to the agreement would cause serious injustice.

Setting aside a relationship property agreement means that the whole agreement is set aside, not just parts of it.

The disparity in the allocation of the relationship property was not in itself sufficient to set aside the agreement.  It was the future obligations and restrictions placed in the agreement upon Jack which meant that enforcing the agreement would cause serious injustice.

The dramatic drop in the value and profitability of the business since the signing of the agreement made it more difficult for Jack to sell the business and to fulfil his obligations under the agreement. He was obliged to operate the business for an indefinite period of time during which Jessica would receive a 7/8th share of the profits. This was considered seriously unjust in the circumstances, especially as the agreement required Jessica’s consent to any sale terms.

This case highlights the importance of obtaining a “clean break” of relationship property in separation situations, where possible.  Circumstances can change and parties need to be aware, when entering an agreement that requires ongoing obligations between them, that agreements of this nature can be set aside on the grounds of serious injustice.