Income is classified as relationship property – surprised?

For all couples, embarking on the journey of building a life together involves not only love and commitment but also financial considerations.  As you navigate through shared finances, it’s important to understand the legal framework surrounding income and assets, particularly in the context of the Property (Relationships) Act 1976 (Act).

The Act sets out the law relating to the division of property and assets in the event of a relationship ending, whether by separation or death.  The Act applies to married couples, civil union partners, and de facto couples who have been together for more than three years.  

Inheritance and assets acquired prior to the relationship and kept separate are usually classed as separate property.  The family home and assets acquired during the relationship through income sources are usually classed as relationship property.

What is often surprising for couples is that income earned during a relationship is generally considered relationship property, regardless of which partner has earned it. This means that both partners are entitled to a share of the income acquired by either party during the relationship and any assets purchased with that income during the relationship.  However, income earned from property acquired prior to the relationship and kept separate, will remain that partner’s separate property.

One of the fundamental principles of the Act is the equal sharing principle. This principle dictates that relationship property should be divided equally between the partners unless there are certain circumstances that justify an unequal division. So, regardless of differences in income, both partners are entitled to an equal share of the assets acquired during the relationship.

While the equal sharing principle is the default, under the Act, couples do have the option to enter into contracting out agreements, commonly known as prenuptial agreements or section 21 agreements.  Such an agreement sets out how property will be divided in the event of a separation so it is clear for each partner what property will be separate property and what will be relationship property and split equally.

Navigating these issues can be tricky!  Here are some practical steps for couples regarding finances:

  1. Open Communication: Discuss your financial goals, expectations, and concerns openly with your partner.  Establishing clear communication around finances can help avoid misunderstandings in the future.
  2. Seek Legal Advice: Consult with a lawyer to understand your rights and obligations under the Act.  A lawyer can provide personalised advice based on your circumstances and help you navigate through complex legal matters.
  3. Keep Records: Maintain records of financial transactions, property acquisitions, and contributions made by both partners throughout the relationship. Having documented evidence can streamline the process of property division in the event of a separation.
  4. Plan for the Future: Consider entering into a contracting out agreement to define how assets will be divided if the relationship ends. While it may seem daunting, having a clear plan in place can provide peace of mind and protect both partners’ interests.

Navigating income and the Act requires careful consideration and proactive planning for couples. If you would like to discuss your relationship property matters, please speak with one of our Private Wealth experts at Hesketh Henry.


Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.


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