Should I be concerned if one of my children is in a de facto relationship?
There is a lot of confusion about what happens when two people start living together. Does living together automatically mean that they are in a de facto relationship? Do they immediately have a claim on the other’s assets? Are they immediately liable for the debts of the other? Is there any way to protect the assets which you bring into a de facto relationship? Is there a way to protect yourself from debts which your partner brings into and incurs during a de facto relationship?
What is a De Facto Relationship?
By simply moving in together, a couple does not establish a de facto relationship. It takes more than living together to establish what a court will recognise as a de facto relationship. There are several circumstances which are taken into consideration when determining if a de facto relationship exists, including:
- The length of the relationship;
- Whether a sexual relationship existed;
- Whether there are any children of the relationship and the care of those children;
- The degree of financial dependence between the parties and mutual commitment towards a shared life;
- The ownership, use and acquisition of the parties’ property; and
- The reputation and public aspects of the relationship.
It is clear from past cases that all of the above circumstances do not have to be present for a de facto relationship to exist.
The Impact of a De Facto Relationship on Property
If it is determined that a relationship is a de facto relationship, the rights and obligations of the parties of the relationship are the same as those of the parties of a marriage. That means that the parties of a de facto relationship have rights to all the property owned by the parties jointly, as well as the property owned solely by each of the parties. It also means that each of the parties have an equal obligation toward the debts owed jointly, as well as the debts owed solely by each of the parties. The parties also have rights to the superannuation interests of the other party. If a de facto relationship breaks down, and arrangements have not been made for dealing with the property settlement by other means, the property settlement will require the parties to go through the same process that parties to a broken marriage must go through to reach a property settlement.
Protecting the Property of the Parties in a De Facto Relationship
There is a way to help protect the property of the parties of a de facto relationship. The parties of the relationship can enter into a Binding Financial Agreement (BFA). By entering into a BFA the parties can:
- Establish the property held by each of them at the time the BFA is made;
- Establish any debts the parties hold at the time the BFA is made;
- Establish the financial interests each of them holds at the time the BFA is made;
- Establish any inheritances either of them may expect to be receiving and wish to preserve;
- Set out how their property will be divided if their relationship breaks down; and
- Set out the parties’ spousal maintenance obligations to each other.
A BFA can be entered into prior to the start of a de facto relationship or after a de facto relationship has already been established. As was indicated above, it is possible for a couple to be living together, but not necessarily be in a de facto relationship. If they have been living together for some time and they have decided that they want to buy a house together, it may be likely that such a step would be sufficient to place them in a de facto relationship. If they were to enter into a BFA, doing so would confirm that they are in a de facto relationship.
Protecting the interests of those who assist the parties of a de facto relationship
When young couples start a relationship, they often rely upon their parents to assist them in setting themselves up in their life together. This assistance can often result in substantial financial commitments by the parents. This may be by a loan to allow the couple to make a down payment on a house, or it might be by the parents acting as guarantor on the loan for the purchase of a house. In such cases it is reasonable for the parents to request that safeguards be put in place so that, if the relationship does break down, the financial commitment made by the parents will be reimbursed. It is possible, in these circumstances, to have a BFA prepared with the parents as parties to the BFA and the terms of the BFA such that the parents are to be reimbursed for any financial assistance which they provided to the parties of the relationship prior to the division of the remaining property of the relationship.
Protecting the interests of entities in which parties to a de facto relationship may have an interest
In some cases, there may be financial resources, such as family trusts or inheritances, which one of the parties to a de facto relationship may have an interest in which other prospective beneficiaries of that financial resource may wish to protect against claims in case the de facto relationship breaks down. A BFA can be drafted with terms which state that, if the de facto relationship breaks down, there will be no claim made against a family trust, an inheritance or any other financial resource specified in the BFA.
Providing Assistance Should Not Put You At Risk
It is natural for parents to want to do all that they can to assist their children in setting themselves up with their new partner. Doing so does not mean that they must place themselves at financial risk. By taking reasonable steps, and following good legal advice, it is possible to assist your child in a new de facto relationship and protect your financial commitment. By entering a properly arranged Binding Financial Agreement, your financial commitment will be protected and the property of the parties to the relationship will also be protected.
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