There is a lot of confusion about what happens when two people start living together.
- Does living together automatically mean that you are in a de facto relationship?
- Do you immediately have a claim on your partner’s assets?
- Is your partner immediately liable for your debts?
- Is there any way to protect the assets which you bring into a de facto relationship?
- Is there a way to protect yourself from debts which your partner brings into and incurs during a de facto relationship?
What is a De Facto Relationship?
By simply moving in together, and your partner will not establish a de facto relationship. It takes more than living together to establish what a court will recognise as a de facto relationship. There are several circumstances which are taken into consideration when determining if a de facto relationship exists, including:
- The length of the relationship;
– Whether a sexual relationship existed;
– Whether there are any children of the relationship and the care of those children;
– The degree of financial dependence between the parties and mutual commitment towards a shared life;
– The ownership, use and acquisition of the parties’ property; and
– The reputation and public aspects of the relationship.
It is clear from past cases that all of the above circumstances do not have to be present for a de facto relationship to exist.
Two people who are living together may be in a de facto relationship or they may just be housemates. If they are living together and there is also a sexual relationship, there is an increased likelihood that it would be found that there is a de facto relationship. If a child was produced as a result, there is reasonably good chance that it would be found that a de facto relationship existed. If the parties lived in a house which they had purchased in joint names with a loan in joint names, then it is very likely that it would be found that there is a de facto relationship.
The difference between living together and being in a de facto relationship is often a difference which is not recognised when couples change from one category to the other. The change to being in a de facto relationship can, however, have a significant impact on your financial well-being if you do not recognise the change in your circumstances and take reasonable steps to protect yourself and your property.
The Impact of a De Facto Relationship on Property
If it is determined that your relationship is a de facto relationship, your rights and obligations are the same as those of the parties of a marriage. That means that you will have rights to all of the property owned by you and your partner jointly, as well as the property owned solely by each of you. It also means that each of you have equal obligations toward the debts owed jointly, as well as the debts owed solely by each of you. The parties also have rights to the superannuation interests of the other party. If the de facto relationship breaks down, and arrangements have not been made for dealing with the property settlement by other means, the property settlement will require you and your partner to go through the same process that parties to a broken marriage must go through to reach a property settlement.
Protecting Your Property in a De Facto Relationship
There is a way to protect your property in a de facto relationship. You can enter into a Binding Financial Agreement (“BFA”). By entering into a BFA you can:
- Establish the property held by you and held by your partner at the time the BFA is made;
- Establish any debts held by you and held by your partner at the time the BFA is made;
- Establish the superannuation interests held by you and held by your partner at the time the BFA is made;
- Establish the financial interests held by your and held by your partner at the time the BFA is made;
- Establish any inheritances either you or your partner may expect to be receiving and wish to preserve;
- Set out how the property will be divided if your relationship breaks down; and
- Set out the spousal maintenance obligations to each other.
A BFA can be entered into prior to the start of a de facto relationship or after a de facto relationship has already been established. As was indicated above, it is possible for you to be living together, but not necessarily be in a de facto relationship. If you have been living with your partner for some time and you have decided that you want to buy a house together, it may be likely that such a step would be sufficient to place you in a de facto relationship. If you and your partner were to enter into a BFA, doing so would confirm that you are in a de facto relationship.
If you are in a de facto relationship that breaks down and there is no BFA in place, it is still possible to arrange a property settlement by entering into a BFA. Negotiating the terms of a BFA after the relationship has broken down, however, is usually more difficult than doing so before or during the relationship. If successful, a negotiated BFA can arrange a property settlement at a substantial savings in time and money compared to legal proceedings.
If you are considering moving with someone, or if you have been living with you partner for a lengthy period and think some of the considerations for a de facto relationship may apply to you, you should consider entering into a BFA for the purpose of defining and protecting the property which you and your partner are bringing into the relationship.