Congratulations de factos …. You’re as Good as Married

29 Apr 2009

What was the old system?

Prior to the recent changes to the Commonwealth Family Law Act, property settlements between de factos were dealt with under the Victorian Property Law Act. Cases were treated as common law property disputes in the County or Supreme Courts of Victoria, which involved a costly and lengthy process. Under the old system private financial agreements were not binding, future needs could not be taken into account and there was no provision for ongoing spousal maintenance.

On December 1 2008, in an attempt to appear active in this area, the Victorian government enacted the Relationships Act. The Act set up a Relationships Register and established a regime for division of property and payment of maintenance for separating de facto couples, similar to the Family Court system. This system applies to all de factos separating between 1 December 2006 and 1 March 2009.

What is the new system?

On March 1 2009, a new section was added to the Family Law Act which applies to de factos separating after that date. Now people living in such relationships have exactly the same property settlement and spousal maintenance entitlements as married couples. This will apply to people living in both heterosexual and same-sex de facto relationships. Now all de facto matters will be handled by the Family Court and Federal Magistrate’s Court under the new amendments to the Commonwealth Act.

What is a de facto relationship?

The Family Law Act defines a de facto relationship as “a relationship of a couple living together on a genuine domestic basis.” This definition is largely the same as under the old system.

In many cases it will be mutually agreed or easily proven that a couple is living in a de facto relationship. However, there will be cases where the existence of a de facto relationship is in dispute, and one party would like to have the Family Law Act apply following separation, and the other may not.

In determining the existence of a de facto relationship, the court may take into account the following factors:

  • 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 or not the relationship has been registered under State laws
  • The care and support of children
  • The reputation and public aspects of the relationship

It is important to note that the Family Law Act states that no particular factor is overriding, and the absence of a factor will not mean that there is no de facto relationship in existence.

Duration of the relationship

Under the Family Law Act, a relationship will generally be considered to be de facto in nature if it is greater than two years duration. However, if the relationship has subsisted for less than 2 years, the following matters can also be taken into account;

  • If there is a child of the relationship
  • If one party has made a substantial contribution and there would be a serious injustice if that were not recognised
  • If you have already registered your relationship under the Relationships Act

Limitation period

The Family Law Act states that an application for property settlement or spousal maintenance must be issued within two years after the date of separation.

However, the Family Court has the power to allow someone to bring claims outside of the two-year period if hardship would be caused to a party or a child if leave were not granted.

Benefits for de factos

Predictability

The new system will make it easier for lawyers to assess what may be a fair property settlement because of the large body of case law and experience dealing with the Family Law Act. This should make it easier for people leaving de facto relationships to reach early settlement agreements.

Costs

Even though it will not be cheap to take action in the Family Court or the Federal Magistrates Court, it is likely to be more financially feasible than going through the State courts.

Pre-Action Procedures

Prior to commencing proceedings in the Family Court for property settlement, de facto couples will need to participate in Pre-action Procedures. The procedures require the parties to make full disclosure of their financial position and participate in an appropriate dispute resolution process to try to reach an agreement. This system is likely to improve the early settlement of property disputes between de facto couples.

Pre-action Procedures have been mandatory for married couples for several years and will apply to de facto couples separating after 1 March 2009.

Confidentiality

Any court proceedings under the Family Law Act are confidential, in contrast to the State system. It is a criminal offence to publish any details of such matters, including information that would enable identification of parties involved in the proceedings.

Orders against third parties

The Family Court has the power to make orders against creditors and other people outside of a marriage, if it is necessary to bring about a fair property settlement between a husband and a wife. For example, the Court may prevent a bank from taking action to sell a family home under a mortgage. These benefits will now apply to separating de factos.

Superannuation Splitting

The Family Court has the power to make orders for the splitting of superannuation benefits as part of a de facto property settlement. This will assist in situations where one party’s super is a large proportion of the asset pool. Under the old system, the State courts did not have the power to split superannuation interests and people in de facto relationships could not even agree to split super interests.

Opting in

De facto couples who separated before 1 March can choose to opt in to the new Family Court system. This must be done in writing and be signed by both parties to the de facto relationship. The choice to opt in is irrevocable, and there must be independent legal advice given to each person before they sign the agreement.

Opting out – Binding Financial Agreements

A binding financial agreement is a document that sets out the division of property in the event that the relationship breaks down. De facto couples are now able to enter into Binding Financial Agreements in the same way as people who are married.

Essentially, this will allow de factos to opt out of the Family Court system. If you are not comfortable with the idea of the Family Court deciding on property entitlements, you can enter into a Binding Financial Agreement to govern the division of property in the event of the breakdown of the relationship.

For a Binding Financial Agreement to be valid, it must comply with the formal requirements under the Family Law Act. These include each person seeking independent legal advice prior to signing the agreement.

Conclusion

Congratulations de factos, you’re now as good as married, and have the same property and spousal maintenance entitlements as married couples. If you have an earlier Agreement as to property division, it should be revisited and a new Binding Financial Agreement executed. Alternatively, if no Agreement is in existence, you now have the opportunity of entering into a formal binding Agreement.

Author: Nick Rimington