Estate Planning - Changes to The De Facto Relationship Rules

The new law relating to the breakdown of a de facto relationship came into force on 1 March 2009.  It took effect in all States except South Australia and Western Australia as a result of a referral of powers by all other States.

The new law applies the same principles to de facto couples (including same sex couples) as currently apply to formally married couples under the Family Law Act.  De Facto couples have the same rights as married couples when it comes to property settlement, superannuation splitting and spouse maintenance.  Much of this is very new given that State laws that previously operated in this area did not deal with many of these issues.

There is no single test for the existence of a de facto relationship nor any stipulation of a specific time of living together that needs to apply.  Instead the court must decide whether a de facto relationship exists based on things like:

• the duration of the relationship;
• the nature and extent of their common residence;
• whether a sexual relationship exists;
• the degree of financial dependence or interdependence, and any arrangements for financial support, between them;
• the ownership, use and acquisition of their property;
• the degree of mutual commitment to a shared life;
• whether the relationship is or was registered under a prescribed law of a State or Territory as a prescribed kind of relationship;
• the care and support of children;
• the reputation and public aspects of the relationship.

There are of course a significant number of people who have entered into de facto relationships deliberately, often because of their fear of horror stories about the family law treatment of their friends or because they have experienced such a horror story themselves in a previous relationship.  For others they are blissfully unaware that the person they are currently living with is slowly accumulating a larger and larger share of their assets as time passes – a share that has grown exponentially as a result of the new law.

The only protection that can be offered is through the use of a Binding Financial Agreement or ‘BFA’ – what we used to call ‘pre-nuptial agreements’.  The effect of a Binding Financial Agreement is to oust the court’s jurisdiction to deal with part or all of the property the subject of the BFA as well as spouse maintenance and superannuation.  BFA’s are enforceable by the Family Court but likewise they can be set aside by that Court in circumstances specified in the Act.  They can be made prior to or during the marriage or after the divorce. A binding financial agreement can be enforced after the death of one or both parties.  It is binding on the legal personal representative (ie executor) of the deceased party to the marriage.

An estate planning professional:

• will need to remind their clients that are in a de facto relationship that if the relationship ends they will be dealt with in the same way as formally married persons
• may need to advise their client that they should consider entering a BFA
• should ask every client as part of their fact finding whether the client is a party to a BFA and must clearly take into account the terms of that agreement when preparing a client’s estate plan
• should advise their client that in the absence of a BFA, the estranged de facto spouse of a deceased could claim against the estate to recover the entitlements they would have been entitled to had the deceased partner survived and the parties had placed their property issues before the Family Court.