Taking the fiction out of de facto finances

Whether you are happily in a de facto relationship or in the process of getting out of one, taking for granted your personal, legal and financial status can be a costly mistake.

These days there are a variety of co-dependent relationships outside wedlock. This has made it necessary for courts ruling on property settlements to be satisfied that an unmarried couple is in fact ‘de facto’ by law.(1) People who assumed they were part of a de facto couple have been surprised when courts have ruled that laws introduced in 2009 to extend rights to de facto couples do not apply to them.(2)

This can happen if a de facto relationship is difficult to prove, there is no pre-nuptial style financial agreement in place or they have not registered their domestic relationship with their state’s Justice Department.


Steps to safeguard your future

Entering into a financial agreement with a partner provides some certainty about who owns what during a relationship and beyond. Your adviser can guide you in drawing up
such a document.

In the event of a relationship breakdown, this document can help a court confirm de facto status and apply the same property division rights which apply to a married couple under the Family Law Act. This legislation also applies to same-sex relationships.

One of the major features under the updated legislation is that de facto couples can now split superannuation between the partners as these funds are considered part of jointly owned assets.

On the flipside, being in a de facto relationship for at least a year can dilute the level of Centrelink benefits to which you are entitled.(3)

If the Department of Human Services recognises that an applicant is part of a cohabitating couple, whether married or not and regardless of gender, it will take into account the combined earnings and assets of both partners before assessing the level of Centrelink benefits to be paid to one or both. This will likely result in a lower benefit for a person living as a couple.

Benefits of being de facto

But there are also a number of financial concessions in declaring de facto status. For instance, the government rebate for private health insurance is greater for families than for singles, and de facto couples are assessed as ‘families’ for this purpose.(4)

Likewise, a partner to which you are not married but with whom you have a genuine domestic relationship can be considered as a spouse in order to claim income tax concessions.

If you register your de facto relationship with the appropriate state authority, your legal rights and responsibilities are similar to those of married couples.(5)

Under this scenario, if your partner died, you could be entitled to a share of the intestate estate and financial assistance under the Succession Act; receive compensation under Workers Compensation law; and social security benefits under the Commonwealth Social Security Act.

Know your rights

Prior to March 2009, settlement disputes between de facto partners were handled under state laws. Today, with the exception of Western Australia, these cases have been handed over to the jurisdiction of the Commonwealth under the 2008 Amendment to the Family Law Act 1975.(6)

Regardless of whether a couple is same-sex or not, childless or not, the Family Law Act is specific about which adults have legal financial responsibilities towards each other after a relationship breakdown.(7) Primarily, a court needs to be satisfied that the couple shared their domestic lives for at least two years, but there are other criteria as well.

For instance, a person who has a sexual relationship with another person over the course of years is not considered de facto if his or her primary residence is elsewhere, regardless of the intensity and longevity of the companionship.

Conversely, the law recognises that a married person living with a non-married person and away from the original spouse can be considered a de facto. The amended Family Law Act has even created a ‘new ground which aims to stop a married person from defrauding or defeating a claim of a de facto partner by a sweetheart deal with a new or old spouse’.(8)

The federal legislation excludes the death of a partner being considered as a ‘breakdown’ of a relationship for the purposes of assessing a property settlement. When one party dies while in a relationship, state laws apply to solve disputes.

Now that the status of bona fide de facto couples is well established in law, it is more important than ever that unmarried partners do not assume their financial entitlements and obligations will be taken care of.

Advice is still crucial to ensure that your affairs are in order while a relationship is intact. Your financial adviser can guide you through these various complex issues, however you should consult a specialist legal adviser to help you establish a will.

  1. Australian Government, Family relationships online, 2013, viewed 26 September 2013, http://www.familyrelationships.gov.au/BrochuresandPublications/Pages/propertydivisionwhendefactorelationshipsbreakdown.aspx
  2. Australian Government, De facto propertyregime, 2011, viewed 26 September 2013, http://www.ag.gov.au/FamiliesAndMarriage/Families/Pages/DeFactoPropertyRegime.aspx
  3. Australian Government Department of Human Services, 2013, viewed 25 September 2013, http://www.humanservices.gov.au/customer/enablers/definition-of-a-partner
  4. Australian Government Private Health Insurance Ombudsman, viewed 25 September 2013, http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/insurancerebate.htm
  5. Armstong Legal, De facto relationships, viewed 25 September 2013, http://www.armstronglegal.com.au/family-law/defacto/
  6. Australian Government ComLaw, viewed 26 September 2013, http://www.comlaw.gov.au/Details/C2008A00115
  7. F. Farouque ‘De factos tell all in property disputes’, 26 March 2012, viewed 26 September 2013, http://www.theage.com.au/victoria/de-factos-tell-all-in-property-disputes-20120325-1vsj4.html
  8. Australian Government ComLaw, viewed 26 September 2013, http://www.comlaw.gov.au/Details/C2008A00115, sub section 90K(1)(aa)

This information is provided by Charter Financial Planning Limited (Charter FP) ABN 35 002 976 294, an Australian Financial Services Licensee, Licence No. 234665, a wholly owned subsidiary of AMP and a member of the AMP Group. It is believed to be correct at the time of publication, however, no representation or warranty is given as to its accuracy. No liability is accepted by any company within AMP or their respective employees or directors for any statement or opinion or any error or omission or for any loss arising from reliance on the information contained in this document. Investments may only proceed by completing the relevant application form attached to a current Product Disclosure Statement (PDS). Fund managers will receive fees for their services out of which authorised representatives of Charter FP may be paid commission. Neither the return of capital nor the investment performance of any investment is guaranteed by Charter FP. Past performance is not indicative of future performance. Any advice given in this document has not been prepared taking into account your particular investment objectives, financial situation or needs. Any case studies in this publication are hypothetical are not meant to illustrate the circumstances of any particular individual. You should assess your particular investment circumstances prior to making any financial decisions. This taxation information is based on the continuation of present laws and their interpretation and is a general statement only. Individual circumstances may vary. From time to time we may bring to your attention products, services and other information that may be relevant to you. If at any time you no longer wish to receive information, you may opt out by contacting our office.

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