So, if you separate you may have to share the equity in your home or business when you never intended to do so.
Last year, Parliament kicked to touch the highly anticipated recommendations from the Law Commission proposing to change our relationship property laws. The recommendations will be looked at again once Parliament has received the benefit of the Law Commission’s review of our law relating to succession. Given the large overlap between these two areas of law that seems appropriate, however in my view, the changes recommended by the Law Commission were very sound and could have been adopted immediately.
For example, the Law Commission recommended that the current law, which provides for equal sharing of the family home upon separation regardless of whether or not it was owned by one party before the commencement of the relationship, be changed. The recommendation was to classify only the increase in value of the home as relationship property. Most people would see that as fair.
While the recommendations may yet become law, as it stands now, if you own your own home outright but have your new partner move in with you, after three years (subject to certain exceptions) you must share the equity in your home if you separate. Most people would see that as unfair, particularly when the relationship is for a relatively short length of time.
Given that the status quo remains the same for now, it is important to remember that is perfectly acceptable for parties to enter into a contract which records their agreement – having first received the benefit of independent legal advice – to share differently, in the event of their separation, than what the law would otherwise provide.
These agreements are commonly called “contracting out” agreements – this is because the parties agree, by contract, to a different regime. Such agreements are appropriate in and for many circumstances including the protection of the family home and business assets acquired before the relationship and can be done at any time in a relationship.
The record values of property coupled with the fact that people are living longer and entering into second or third relationships and want to ensure their children are provided for means that there is good reason to understand what the law would provide in the event of separation. Ownership of the family home by a trust will not necessarily protect it either.
It is perfectly acceptable for parties to agree to an outcome that is different to what the law would otherwise provide. As noted above, many people would consider the law as it relates to the family home to be unfair. Litigation is expensive and not predictable, particularly in areas where Judges have discretion over whether or not, and to what extent, a division other than the usual 50/50 is appropriate.
Careful consideration of what would or should happen in the event of separation can avoid an unfair result and provide certainty for both partners and their families.
For expert advice on relationship property and separation matters contact Andrea Halloran today.
Disclaimer: The information contained in this publication is of a general nature and is not intended as legal advice. It is important that you seek legal advice that is specific to your circumstances.