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de facto relationships: future proofing your assets

06 July 2022
carly burgess
Read Time 4 mins reading time

Unlike a marriage, there is usually no ceremony or certificate marking the beginning of a de facto relationship. Nor is there a Divorce Order that confirms when a de facto relationship has concluded. The vast majority of de facto relationships are unregistered. Sometimes one party asserts a de facto relationship exists and the other asserts it doesn’t, and the date that one ends can be contentious and can have significant consequences.

In an aging population, people are entering new relationships later in life. One or both have often accumulated wealth. It is a sad reality that a spouse party might experience complicated health, including cognitive impairment such as Dementia, causing a uniquely difficult situation for both parties. A third party with Power of Attorney might step in. The relationship can completely change.

The High Court of Australia has recently considered the principles relevant in determining how and when a de facto relationship is deemed to have broken down irretrievably and the application of those principles in circumstances where a party in a de facto relationship has lost capacity.

The Federal Circuit and Family Court of Australia has the power to make a property division order in a de facto relationship upon the breakdown of a de facto relationship. The Family Law Act 1975 does not define what constitutes the ‘breakdown’ of a relationship. This recent case confirms that each case is considered on its particular facts and circumstances.

capacity deterioration within a de facto relationship

Ms Fairbairn and Mr Radecki commenced living together on a genuine domestic basis (living in a de facto relationship) in late 2005 or early 2006 and agreed to keep their assets and liabilities separate but lived together in the house owned by Ms Fairbairn.

Importantly, in 2010, the parties entered into a “Domestic Relationship Agreement (Cohabitation Agreement)” (a 90UC Financial Agreement) which ratified their agreement to quarantine their respective property, including that the home remained the property of Ms Fairbairn.

In 2015, Ms Fairbairn began to suffer rapid cognitive decline and by early 2017 she was diagnosed with Dementia.

Between 2015 and 2017, as Ms Fairbairn’s health deteriorated, the parties spent more time independently of the other. They occupied separate bedrooms in the home, with their own personal belongings in their respective rooms. In early 2017, Mr Radecki planned a three-month holiday overseas without Ms Fairbairn, whose health by this time was “quite precarious.”

By mid-2017, Ms Fairbairn qualified for residential aged care. On the advice of her doctor, while Ms Fairbairn had the capacity to do so, she executed an enduring Power of Attorney in favour of her adult children.

Upon his return from overseas, Mr Radecki was very unhappy with Ms Fairbairn’s children.  He convinced Ms Fairbairn when she was in a vulnerable and confused state, that her children were stealing money from her.

appointment of trustee

In July 2017, Mr Radecki drove Ms Fairbairn to a local courthouse whereupon he facilitated her in revoking the Power of Attorney and replacing it with an enduring Power of Attorney in favour of him and his brother.

Shortly thereafter, following a fall by Ms Fairbairn, Mr Radecki arranged for a solicitor to attend upon her for the purposes of drawing an updated Will. The new Will, duly executed, was more favourable to him than her previous Will. It conferred upon him a right to occupy the home after her death, for his lifetime. In contrast, the previous Will gave him a right to live in her property for six months after her death.

By 2018, a Trustee was appointed to make health and welfare decisions on behalf of Ms Fairbairn including her move into a residential aged care facility where she has since resided. By 2019, the Trustee had formed the view that the de facto relationship had broken down irretrievably and commenced proceedings in the then Federal Circuit Court seeking property division orders pursuant to the Family Law Act. An Order sought by the Trustee was for the sale of Ms Fairbairn’s property. Mr Radecki did not consent to the Order sought.

trial judge

The Trial Judge found that Mr Radecki’s conduct during the demise of Ms Fairbairn’s mental capacity was inconsistent with a “fundamental premise” of their relationship, i.e the strict separation of assets. The Trial Judge found that the relationship had broken down in or around 25 May 2018, when Mr Radecki suggested that Ms Fairbairn’s accommodation be paid for from her superannuation and that he remain living in her home.

The Trial Judge held that on an objective assessment of Mr Radecki’s conduct, he had demonstrated an intention to end the de facto relationship with Ms Fairbairn.

the full court appeal

Mr Radecki appealed the decision to the Full Court of the Family Court. The Full Court disagreed with the Trial Judge. The Full Court held that the actions of Mr Radecki were not fundamentally inconsistent with a continuing de facto relationship. Some of his actions were considered to be “bad behaviour”, but such behaviour is “all too often a hallmark of a relationship.” The Court concluded that the evidence showed that there was a dispute between Mr Radecki, the Trustee, and Ms Fairbairn’s children, as to how to best manage Ms Fairbairn’s affairs.

The Trustee on behalf of Ms Fairbairn sought special leave to appeal to the High Court.

high court decision

The High Court allowed the appeal and agreed with the Trial Judge, that the de facto relationship had broken down by 25 May 2018. In forming this view, the Court held that from that date onwards, the parties no longer had a relationship as a couple living together on a genuine domestic basis. This conclusion did not follow from the end of the parties cohabitation, nor from Ms Fairbairn’s mental incapacity. These were not the determinative factors. The “essential feature” was the fact that there was a mutual intention of the relationship that the parties kept their assets separate from each other, but by 2017, Mr Radecki had begun to act as if he was no longer bound by this agreement.

what did the high court find?

  • Firstly, the Court firmly rejected the contention that a de facto relationship necessarily breaks down where the parties to the relationship stop physically living together. Ms Fairbairn’s move into the aged care facility was not necessarily the end of the de facto relationship.
  • Secondly, the Court considered that whilst de facto relationships will often and usually mean cohabitation of some residence by a couple for some period of time, cohabitation of a residence or residences is not a necessary feature of ‘living together on a genuine domestic basis.” The Court held that two people, for a number of reasons, might not reside together but nonetheless will still be found to be in a de facto relationship.
  • The phrase “Living together” should be construed as meaning “sharing life as a couple”, Section 4AAA does not prescribe how a couple should share life together.

lessons for clients in de facto relationships

  • Obtain advice from a family lawyer to ascertain the status of your relationship to discuss asset protection or your entitlement to a property settlement under the Act.
  • To protect your assets in the event of a breakdown of relationship, for greater control and clarity you can enter into a Binding Financial Agreement (prior to the relationship breakdown). We can work with you in tailoring a bespoke Agreement which can contemplate what occurs in the event of a breakdown of a relationship, the family law consequences alongside estate planning and elder law implications.
  • If you are concerned about your parent’s financial wellbeing- you can seek legal advice about your concerns.

Our Private Clients team can help you plan for the future and ascertain the nature of your relationship and your rights, should the relationship breakdown or should one or both parties lose capacity. Contact us if this article raises anything for you.

stay up to date with our news & insights

de facto relationships: future proofing your assets

06 July 2022
carly burgess

Unlike a marriage, there is usually no ceremony or certificate marking the beginning of a de facto relationship. Nor is there a Divorce Order that confirms when a de facto relationship has concluded. The vast majority of de facto relationships are unregistered. Sometimes one party asserts a de facto relationship exists and the other asserts it doesn’t, and the date that one ends can be contentious and can have significant consequences.

In an aging population, people are entering new relationships later in life. One or both have often accumulated wealth. It is a sad reality that a spouse party might experience complicated health, including cognitive impairment such as Dementia, causing a uniquely difficult situation for both parties. A third party with Power of Attorney might step in. The relationship can completely change.

The High Court of Australia has recently considered the principles relevant in determining how and when a de facto relationship is deemed to have broken down irretrievably and the application of those principles in circumstances where a party in a de facto relationship has lost capacity.

The Federal Circuit and Family Court of Australia has the power to make a property division order in a de facto relationship upon the breakdown of a de facto relationship. The Family Law Act 1975 does not define what constitutes the ‘breakdown’ of a relationship. This recent case confirms that each case is considered on its particular facts and circumstances.

capacity deterioration within a de facto relationship

Ms Fairbairn and Mr Radecki commenced living together on a genuine domestic basis (living in a de facto relationship) in late 2005 or early 2006 and agreed to keep their assets and liabilities separate but lived together in the house owned by Ms Fairbairn.

Importantly, in 2010, the parties entered into a “Domestic Relationship Agreement (Cohabitation Agreement)” (a 90UC Financial Agreement) which ratified their agreement to quarantine their respective property, including that the home remained the property of Ms Fairbairn.

In 2015, Ms Fairbairn began to suffer rapid cognitive decline and by early 2017 she was diagnosed with Dementia.

Between 2015 and 2017, as Ms Fairbairn’s health deteriorated, the parties spent more time independently of the other. They occupied separate bedrooms in the home, with their own personal belongings in their respective rooms. In early 2017, Mr Radecki planned a three-month holiday overseas without Ms Fairbairn, whose health by this time was “quite precarious.”

By mid-2017, Ms Fairbairn qualified for residential aged care. On the advice of her doctor, while Ms Fairbairn had the capacity to do so, she executed an enduring Power of Attorney in favour of her adult children.

Upon his return from overseas, Mr Radecki was very unhappy with Ms Fairbairn’s children.  He convinced Ms Fairbairn when she was in a vulnerable and confused state, that her children were stealing money from her.

appointment of trustee

In July 2017, Mr Radecki drove Ms Fairbairn to a local courthouse whereupon he facilitated her in revoking the Power of Attorney and replacing it with an enduring Power of Attorney in favour of him and his brother.

Shortly thereafter, following a fall by Ms Fairbairn, Mr Radecki arranged for a solicitor to attend upon her for the purposes of drawing an updated Will. The new Will, duly executed, was more favourable to him than her previous Will. It conferred upon him a right to occupy the home after her death, for his lifetime. In contrast, the previous Will gave him a right to live in her property for six months after her death.

By 2018, a Trustee was appointed to make health and welfare decisions on behalf of Ms Fairbairn including her move into a residential aged care facility where she has since resided. By 2019, the Trustee had formed the view that the de facto relationship had broken down irretrievably and commenced proceedings in the then Federal Circuit Court seeking property division orders pursuant to the Family Law Act. An Order sought by the Trustee was for the sale of Ms Fairbairn’s property. Mr Radecki did not consent to the Order sought.

trial judge

The Trial Judge found that Mr Radecki’s conduct during the demise of Ms Fairbairn’s mental capacity was inconsistent with a “fundamental premise” of their relationship, i.e the strict separation of assets. The Trial Judge found that the relationship had broken down in or around 25 May 2018, when Mr Radecki suggested that Ms Fairbairn’s accommodation be paid for from her superannuation and that he remain living in her home.

The Trial Judge held that on an objective assessment of Mr Radecki’s conduct, he had demonstrated an intention to end the de facto relationship with Ms Fairbairn.

the full court appeal

Mr Radecki appealed the decision to the Full Court of the Family Court. The Full Court disagreed with the Trial Judge. The Full Court held that the actions of Mr Radecki were not fundamentally inconsistent with a continuing de facto relationship. Some of his actions were considered to be “bad behaviour”, but such behaviour is “all too often a hallmark of a relationship.” The Court concluded that the evidence showed that there was a dispute between Mr Radecki, the Trustee, and Ms Fairbairn’s children, as to how to best manage Ms Fairbairn’s affairs.

The Trustee on behalf of Ms Fairbairn sought special leave to appeal to the High Court.

high court decision

The High Court allowed the appeal and agreed with the Trial Judge, that the de facto relationship had broken down by 25 May 2018. In forming this view, the Court held that from that date onwards, the parties no longer had a relationship as a couple living together on a genuine domestic basis. This conclusion did not follow from the end of the parties cohabitation, nor from Ms Fairbairn’s mental incapacity. These were not the determinative factors. The “essential feature” was the fact that there was a mutual intention of the relationship that the parties kept their assets separate from each other, but by 2017, Mr Radecki had begun to act as if he was no longer bound by this agreement.

what did the high court find?

  • Firstly, the Court firmly rejected the contention that a de facto relationship necessarily breaks down where the parties to the relationship stop physically living together. Ms Fairbairn’s move into the aged care facility was not necessarily the end of the de facto relationship.
  • Secondly, the Court considered that whilst de facto relationships will often and usually mean cohabitation of some residence by a couple for some period of time, cohabitation of a residence or residences is not a necessary feature of ‘living together on a genuine domestic basis.” The Court held that two people, for a number of reasons, might not reside together but nonetheless will still be found to be in a de facto relationship.
  • The phrase “Living together” should be construed as meaning “sharing life as a couple”, Section 4AAA does not prescribe how a couple should share life together.

lessons for clients in de facto relationships

  • Obtain advice from a family lawyer to ascertain the status of your relationship to discuss asset protection or your entitlement to a property settlement under the Act.
  • To protect your assets in the event of a breakdown of relationship, for greater control and clarity you can enter into a Binding Financial Agreement (prior to the relationship breakdown). We can work with you in tailoring a bespoke Agreement which can contemplate what occurs in the event of a breakdown of a relationship, the family law consequences alongside estate planning and elder law implications.
  • If you are concerned about your parent’s financial wellbeing- you can seek legal advice about your concerns.

Our Private Clients team can help you plan for the future and ascertain the nature of your relationship and your rights, should the relationship breakdown or should one or both parties lose capacity. Contact us if this article raises anything for you.