When does the Property (Relationships) Act apply?

The Act applies to married couples regardless of how long they have been married, and to de facto couples (including same-sex couples) if the relationship has lasted at least 3 years. After this period, property is required to be equally divided regardless of each party's contribution, unless you have a COA.

How much does a Property Sharing Agreement cost?

A Property Sharing Agreement typically costs approximately $2,000 plus GST, depending on complexity. Each party (except one) will need independent legal advice, which usually costs around $350 plus GST to review the agreement. This cost is small compared to potential disputes without an agreement.

Do I Need a Contracting Out Agreement or Property Sharing Agreement?

Q: What is a Contracting Out Agreement (COA)?

A Contracting Out Agreement allows couples to determine how assets will be divided if the relationship ends, rather than following the default 50/50 split under the Property (Relationships) Act 1976. It protects unequal financial contributions and can be signed before or during your relationship.

Q: What is a Property Sharing Agreement (PSA)?

A Property Sharing Agreement is a legal document for two or more people (such as siblings or friends) who want to buy property together. It specifies ownership percentages, how expenses are divided, decision-making processes, what happens if someone wants to sell, and how disputes will be resolved.

The team at Schnauer & Co's have put together a resource toolkit to highlight some of the common misconceptions that some first home buyers have and provide you with tips on how to avoid some easy mistakes when buying your first home. In this Part 6 of the series (see Part 1), we talk about COAs or a Property Sharing Agreement and why they are an important document to have, especially for first home buyers.

Understanding Relationship Property Law

Once a relationship has been in place for 3 years, the Property (Relationships) Act 1976 ("Act") requires property to be equally divided, despite each party's contribution.

The Act Applies To:

Married couples, regardless of how long they have been married
De facto (including same sex) couples if your relationship has lasted at least 3 years. The Act only applies to shorter de facto relationships in special circumstances.

What is a Contracting Out Agreement (COA)?

The correct terminology for what most couples require when purchasing a property with an unequal financial contribution is a contracting out agreement ("COA") which you can sign before or during your relationship, but the later you leave it, the more difficult it can be to reach an agreement. A COA allows the parties to determine how assets will be divided in the event the relationship ends.

Our Recommendation: Sign a COA at the earliest possible opportunity to ensure that your separate contributions are adequately protected and each of you will know where you stand in the future.

A separation or relationship property agreement ("RPA") is what is entered into when a couple decide to separate and they want to document the agreement made between them to divide their relationship assets.

When Are COAs Commonly Used?

Generally, COAs are entered into when people are seeking to retain ownership of existing property, especially when one partner has substantially greater property than the other. They're also commonly used to protect property that is special and may need to pass down through the family, or to protect assets for children from previous relationships when re-marrying. Parents who provide gifts to help their children purchase often request a COA to protect that contribution. Similarly, those expecting a future inheritance may want protection while the condition hasn't yet been met.

Important: Nowadays, with parents often needing to help their children buy their first home, it is fairly common for us to prepare COAs before settlement of the property to protect everyone's interest, especially when there is a gift involved.

Common Misconceptions

It is important to think about how the Act may affect you now in advance while your de facto relationship is steady rather than waiting until you have reached the 3 year mark.

A Common Mistake: Some clients think that if the property will be in their own/sole name and if they are the only one servicing a bank mortgage registered on the title, that the Courts will obviously see that asset is theirs. Unfortunately, it is not as simple as that. The Court considers each case based on its own circumstances and not just that general rule.

Clients often tell us that they don't need one as they have only recently started living together and "it hasn't been 3 years yet". They refer to that generic 3 year rule but it is best to attend to this matter as soon as possible and especially when purchasing a property together otherwise it simply gets forgotten until it is too late.

We acknowledge that it can be a difficult subject to broach, but the alternative (equal sharing) can be even less palatable if you are the spouse or partner with the greater amount of assets at stake.

What is a Property Sharing Agreement (PSA)?

We often have siblings or groups of friends purchasing a property together and we recommend that they enter into a property sharing agreement ("PSA") to protect all of their interests.

In simple terms, a PSA is a legal document that outlines how two or more people will share the ownership and use of a property. It is commonly used when two or more individuals want to buy a property together but do not want to be fully responsible for the entire property on their own.

A PSA Specifies:

The percentage of ownership each person has
How expenses like mortgage payments and maintenance costs will be divided
How decisions regarding the property will be made
What happens if one co-owner wants to sell their share
How disputes between the owners will be resolved

The goal of a PSA is to provide a clear understanding of everyone's rights and responsibilities regarding the property. It helps avoid conflicts and ensures that each co-owner's interests are protected.

Costs

Property Sharing Agreement: Approximately $2,000 plus GST (depending on what is involved and how complex the arrangement is).

Independent Legal Advice: Usually, we act for one purchaser and the other purchaser(s) would need to seek independent legal advice. Generally, the costs for the other lawyer to review the agreement and give their client(s) advice on it is in the vicinity of $350 plus GST.

In the grand scheme of things, this is a small cost for peace of mind and this can usually be covered by any bank contribution that you may be receiving for your new lending.