Deciphering the Relationships Property Act
Question from Kelly updated on 7th November 2006:
Our expert responded:
This is a great question and could be the subject of an entire article. The absolutely most important thing for you to do is to enter into a 'Section 21 Contracting Out Agreement'. This is what we used to call a pre-nuptial and with the introduction of the Relationships Property Act, is now what we call relationship agreements. The Act says that after three years, any assets owned directly (in your personal name) such as property, shares or bank accounts become relationship property. No process to go through, it just happens. By entering into a contracting out agreement, you are saying that you want your own set of rules, rather than leaving it up to the Act, to govern what happens in the case of a relationship ending. The critical thing is that each of you must have your independent legal advice otherwise the agreement will not be binding. If your partner does not want to enter into an agreement, then you would have to ask yourself why. The second thing is to consider your requirements long term and whether an LAQC or a trust would be better for you. When it comes to relationships, my preference would be for a trust rather than an LAQC. With an LAQC, you own the shares meaning from a relationship point of view, that you may as well own the property in your own name. A trust would ultimately offer more protection from a relationship than an LAQC. And of curse, whether or not your home will work as a rental property, or if you would be better off selling it and investing in other property better suited to your investing requirements. There are other things you will need to be aware of ongoingly and ultimately, in a situation such as this, it is worth the time and cost to get good advice from an accountant and a lawyer specialising in this area.
Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.