It’s generally well-understood that if you live with someone as a couple for three years, if the relationship ends, then any property involved is divided equally. However, what is less well-understood is the definition of “living together as a couple”. What exactly is a de facto relationship, are you in one, and if it ends, what happens to your stuff?
Official Government statistics show that marriage is becoming less popular and more couples are choosing to live together – to use an old term – “out of wedlock”. In 1976, just 16% of couples lived together before marriage, compared to 77% of all couples who married in 2013. And the number of marriages continues to decline each year.
In 2001 Parliament decided to include so-called “de facto couples” in the matrimonial property regime. The Matrimonial Property Act was rebranded as the Property (Relationships) Act.
Given the long history of unmarried women being left in the cold by our laws, the 2001 reform was well overdue. But it does lead to the dilemma that sometimes people are caught by the legal regime without even knowing or intending it.
In a marriage, both parties have to intend to get married and there is documentary proof of the commitment. Things aren’t so clear cut with de facto relationships and this can lead to some unintended consequences for the unwary.
What is a “de facto relationship”? Am I in one?
You have to be living together as a couple for three years before the equal sharing regime applies, right? Well, it’s not that simple.
The Law Society has recently said: “The three-year rule is a ‘bright line’ test that is clear and generally well understood [by the public.]” But while the three-year time period is generally well understood, what arrangements the Courts might consider “living together as a couple” is not well understood. The definition of “de facto partner” in the Property (Relationships) Act is worded so that two people may “live together as a couple” even if they do not physically live together in the same house, and even if they keep their finances largely separate.
The law can catch so-called “LATs” – couples who are Living Apart Together – and other untypical relationships. Unusual cases are sometimes reported in the media – for instance the 2009 Sunday Star-Times headline: “Dumped mistress sues for share of assets”.
In Scragg v Scott, a case from 2013, the parties lived far apart more often than they lived together. Mr Scragg lived in Guam for business reasons; Ms Scott lived mainly in New Zealand, although she visited Guam sometimes. Both of the parties had other sexual partners during their relationship. They mostly kept their finances separate, but Mr Scragg occasionally helped out Ms Scott financially. He also let her live rent free in a property he owned. The Court said although it was an “unusual relationship”, it nonetheless came within the legal definition of a de facto relationship.
Does this mean my casual boyfriend or girlfriend takes half my house if we broke up?
If you are in relationship that might be classed as a “de facto relationship”, then, unless it’s a “relationship of short duration” or equal sharing would be “repugnant to justice” (i.e. extremely unfair), the relationship property pool will be divided equally on separation. Your house might be automatically subject to equal sharing.
The question of whether two people are “de facto partners” is considered on a case-by-case basis, and the Court will look to a number of factors including:
(a) the duration of the relationship;
(b) the nature and extent of common residence;
(c) whether or not a sexual relationship exists;
(d) the degree of financial dependence or interdependence, and any arrangements for financial support, between the parties;
(e) the ownership, use, and acquisition of property;
(f) the degree of mutual commitment to a shared life;
(g) the care and support of children;
(h) the performance of household duties; and
(i) the reputation and public aspects of the relationship.
Court cases around whether a “de facto” relationship exists or not are usually undignified affairs, where the intimate details of people’s private lives are delved into.
What is a contracting out agreement?
The equal sharing regime is not suitable for all couples. The law allows two people to sign a contract to opt out of the Property (Relationships) Act. These agreements are commonly called “contracting out agreements”. Because of the formalities involved in executing a contracting out agreement, they need to be drafted and signed off by lawyers. In fact, they are not legally binding unless witnessed and certified by two lawyers.
The benefits of entering into such an agreement are that there will be no unintended consequences or confusion because both parties have negotiated the terms of the agreement with legal advice. The agreement should represent what both parties think is fair and reasonable. It will save on costly disputes if things have been left up in the air and then there’s a messy break up. You don’t want to be negotiating complicated legal and property issues when emotions are raw.
If you think you’re in a de facto relationship and would like to clarify your relationship property arrangements, our experienced and friendly relationship property team are happy to help.