What’s mine is yours, right?

Introduction

The Property (Relationships) Act 1976 (“the Act”) sets out the law governing the distribution of relationship property on separation.  The starting point in any relationship property dispute is equal sharing between the two parties.  However, a contracting out agreement may be entered into by the parties and this will take priority over the Act (historically known as a “prenuptial agreement”).  That said, entering into such an agreement demands caution; there are strict rules and conditions that must be satisfied in order for the agreement to have any legal footing.  If the correct procedure is not followed, the agreement may well be set aside.

Requirements for a valid agreement

For an agreement to be valid regardless of what it may be trying to achieve, a specific procedure must be followed when the agreement is drawn up:

• The agreement must be in writing and signed by both parties;
• Each party must have independent legal advice;
• The signature of each party must be witnessed by a lawyer;
• The lawyer who witnesses the signatures must certify that the implications of signing have been explained to both parties.

As these factors indicate, an agreement drawn up at the kitchen table will not be enforceable regardless of the intention or agreement of the parties.  This is to ensure that both parties understand and agree to exactly what they are signing, because often it can be overlooked when parties are caught up in the emotion of the relationship.   

You have a valid agreement – but is it enforceable?

Assuming the procedural requirements above are followed, on the face of it the agreement will be valid.  However the question then becomes will it stand the test of time?  Relationships are not static and the assets and liabilities of each party will continue to develop.   A contracting out agreement should be treated as a living document, constantly evolving, and therefore should be updated as you would your will. 

An agreement made in light of current circumstances will not necessarily be relevant five years later if the position of the parties has changed so that it would be a “serious injustice” to uphold the agreement.  As earning capacity, assets and debts change, the agreement may become less and less fair, which may give rise to a serious injustice.   However the passing of time in itself will not invalidate an agreement; other circumstances must be taken into account.

In making an assessment of whether the agreement will be upheld the court will have regard to:

• The provisions of the agreement;
• The length of time since the agreement was made;
• Whether the agreement was unfair or unreasonable at the time it was entered into;
• Whether the agreement has become unfair or unreasonable in light of changes in circumstances;
• The fact the two parties wished to achieve certainty with the agreement;
•  Any other matters the Court considers relevant.

Taking into account all of these factors that may be relevant, if the Court is convinced that the provisions have given rise to a serious injustice then the agreement will be set aside and the equal sharing provision under the Act will apply.

One particularly common consideration is whether the agreement has become unfair or unreasonable since the agreement was entered into.  Whether or not the change in circumstances was foreseen will also be relevant.  Not every injustice will entitle a Court to set aside an agreement.   There must have been at the time of entering into the agreement, or subsequently because of a change of circumstances, unfairness or a lack of equity of a substantial kind.

What is a “serious injustice”?

When undertaking its assessment the Court is essentially looking for a significant change in circumstances of one party compared to the other, thus making the agreement that was entered into significantly unfair at the time of separation.  A common example is where one party is unduly forced to sign an agreement that the party is not happy signing, that is to their own detriment or the others benefit.  There must be a mutual agreement between the parties.

An example is the Family Court decision of M-LA v AVW.  In this case, due to the agreement to keep all assets separate, the result would have left the wife with $4,387.00 in assets and the husband with $289,903.00. The reason was because the wife had given up work in order to care for a child.  The Court held the agreement caused a serious injustice, as the agreement “went too far in depriving the wife of any realistic opportunity of accruing relationship property”.   The structure and changes to the relationship over its course invalidated the agreement, showing the importance of keeping the agreement updated and relevant over the course of the relationship, regardless of how long the relationship is expected to last.   

Conclusion

Continuing to update a contracting out agreement over the course of a relationship is vital.  Although it may seem costly, as a percentage of the assets you are protecting, the legal fees are minimal and it is best to be safe and not risk having the agreement pulled apart at the mercy of the Court.   The agreement should be updated every few years or whenever there is a significant change in the dynamic of the relationship.

If you would like further information please contact Renika Siciliano on 07 958 7429.