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Applying the Property (Relationships) Act to 21st century relationships

25 Aug 2023

| Author: Reweti Kohere

Two significant Supreme Court decisions are changing the way lawyers advise on modern relationships and property rights. The cases, Sutton v Bell and Mead v Paul, will also drive practitioners to draft new clauses in s 21 contracting-out agreements that reflect the court’s recent judgments. Both cases, released in June, are forcing lawyers to grapple with how to apply the Property (Relationships) Act, passed in 1976 and updated in the early 2000s, to relationships in the 21st century.

In Sutton, a unanimous bench clarified the application of s 44 of the Property (Relationships) Act (PRA) to pre-relationship dispositions of property, while a majority of judges in Mead v Paul held the Act could apply to non-exclusive relationships. The possibility of contracting-out agreements signed by people in relationships of more than two individuals is real, said Shortland Chambers barrister Nura Taefi, at a recent ADLS CPD webinar Lawyering for 21st century relationships presented by Taefi and Hesketh Henry partner Mary Joy Simpson. “It’s something that is already happening …. We hear about [polyamorous relationships] more now, but they’ve been around for some time,” Taefi said.

“I’ve spoken to practitioners who have been preparing s 21 agreements for their clients in polyamorous relationships, unsure if they were going to be enforceable and sometimes, therefore, entering into other types of agreements. So, to some degree, the decision gives practitioners a little bit more certainty about how to approach them and that they can use s 21 agreements.”

 

Triangularity

The Supreme Court in Mead discussed for the first time whether the Act could even apply to polyamorous relationships. Brett and Lilach Paul married in 1993 and met Fiona Mead at the turn of the millennium. For 15 years, beginning in 2002, the trio were in a “triangular polyamorous relationship”. They were free to love others, but their primary relationship was between the three of them. Mead was the legal titleholder of the property they shared. Each party contributed to the household.

Lilach Paul separated from Mead and Brett Paul in November 2017 and Fiona and Brett separated in early 2018. Lilach Paul claimed one third of the parties’ family home but Mead objected on the basis that the trio’s relationship didn’t come under the PRA. Brett Paul supported Lilach Paul’s position and sought a declaration that the overall relationship could be divided into three constituent couples for the purposes of property division.

The High Court found in Mead’s favour, while the Court of Appeal found for Lilach and Brett Paul. The sole issue before the Supreme Court was whether the PRA could apply – a matter of jurisdiction for the Family Court, which would ultimately determine how the statute applied.

Justices Mark O’Regan, Joe Williams and Stephen Kós, who wrote the majority decision, dismissed Mead’s appeal. While a triangular relationship could not itself come under the PRA, a de facto relationship didn’t have to be exclusive to be a qualifying relationship. Inherent to all multilateral relationships were groupings of couples, which meant a triangular relationship, with mutual cohabitation and sexual relations, could be divided further into three qualifying relationships.

Justices Susan Glazebrook and Ellen France dissented, saying the majority’s treatment of the throuple as subdivisible was artificial and effectively ignored the way in which the trio saw their relationship and conducted their lives. Given the PRA was premised on coupledom, Parliament was better placed to decide whether to bring non-exclusive relationships within the Act.

 

Vee arrangements

Qualifying couples are empowered by s 21 to contract out of the Act’s equalsharing property rule, by agreeing to arrange the status, ownership and division of their relationship property however they liked. So, would parties to a polyamorous relationship have three separate agreements or one agreement that all three signed? Taefi, who was counsel for Lilach Paul, said acknowledging each constituent relationship would be necessary, but one agreement could do it effectively. Equally, a couple might have to amend an existing s 21 agreement to take account of a third person who joined their relationship.

Another example involved an existing property relationship agreement between two people, except one of the partners then formed a separate relationship with a third person. Taefi said Mead had implications for this kind of relationship, or “vee arrangement”, as the Supreme Court had confirmed that coupledom didn’t have to be exclusive. “You can’t say to your mistress, ‘Well, we don’t have a de facto relationship because you’ve always known I have a wife’. That de facto relationship needs to be looked at on its own and in its own right. It doesn’t take away from that de facto relationship, that there’s another relationship.

“Of course, you still have to meet the standard for mutual commitment to a shared life and have the other [section] 2D factors. But you can’t rely on the existence of another relationship to undercut the second,” she said. Practically, having two separate agreements might make sense, Simpson said. “But I could imagine situations where one partner is asking to see this s 21 agreement that’s also been made with the other partner. So, having visibility over both agreements that are in place and having one agreement contingent on the other also standing – that might be important as well.

 

Diverse relationships

Simpson said in applying the Act to non-exclusive relationships, “you’re always having to dissect it to make two and you’re ignoring one person in the relationship for the purposes of [property division]. It doesn’t fit, does it?” Taefi said while it couldn’t be denied that the Act is focused on couples, Lilach Paul successfully argued that pairing didn’t have to be exclusive. The s 2D factors listed in the meaning of de facto relationship were flexible and designed to apply to a range of relationships. “And there’s nothing actually in the wording of s 2D that says these relationships have to be exclusive. So, that would be reading something into the Act that’s not there already. But you can see the argument goes both ways,” she said.

While Parliament wasn’t necessarily contemplating three-way relationships in 2001 when it introduced de facto relationships to the Act, Taefi said lawmakers needn’t have at the time. “What it did was design this flexible [s] 2D test that could be applied to all kinds of relationships. And we know now, having had this Act with all these changes for 22 years, there’s an enormous diversity in human relationships.”

 

Property dispositions

The Sutton decision was significant because it made clear the interplay between the Act and dispositions of property before a de facto relationship has begun. Section 44 of the Act empowered a court to set aside one party’s transfer, sale, gift or other form of disposition of property made with the intention of defeating another person’s claim or rights under the PRA.

Having met in July 2003, Todd Sutton and Joanna Bell were in a de facto relationship for some seven and a half years and had two children together. Just before their de facto relationship started, Sutton transferred his former matrimonial home to a trust. After the duo separated in 2012, they differed on whether the transferred property formed part of their relationship property.

Claiming half of the property, Bell argued Sutton had transferred it to defeat her PRA rights. Sutton argued that as Bell had no such claim at the time of the transfer, he couldn’t have intended to defeat her rights. Bell succeeded in the lower courts. The Supreme Court followed suit – s 44 could apply to dispositions made before a de facto relationship started, the provision should apply when parties have a “clear and present intention” to form such a relationship and Sutton knew the property transfer would defeat Bell’s future PRA claim.

 

‘We met on this date’

Simpson said entering new relationships was another important reason to have a s 21 agreement. A new clause specifying when de facto partners began contemplating that they were in a de facto relationship should start to appear in such agreements. As Taefi put it, “‘We met on this date, we were in contemplation of a de facto relationship on this date and we agree the de facto relationship commenced on this date’.”

Determining whether parties’ had the requisite clear and present intention would be neither simple nor straightforward. “Unfortunately, we don’t sign a piece of paper or write it up or say what it is,” Simpson said. “It would be nice in a property relationship agreement to be saying the people were in contemplation of a relationship at this point in time, but that’s a difficult thing to advise on and to have your client commit to in writing as well because it’s not an easy thing to assess.”

Taefi highlighted another complexity. “Some people might be in contemplation of a de facto relationship on their first date and some may never be in contemplation of a relationship,” she said. “Unlike a marriage, which you enter intentionally, a lot of people unintentionally find themselves in a de facto relationship such that those people probably are never in contemplation of it until it’s really happened.”

 

Educate

The impact of the Sutton ruling would be felt widely, Taefi said. “We are now, in some cases, going to be looking at ‘were they or weren’t they in contemplation of a de facto relationship?’” Simpson added that care would be needed in the wake of people tidying up their affairs upon leaving a relationship.

“You have trusts where there might not have been gifting completed, you’re having to exit people from trusts and restructure things, create new trusts – all these things that you prefer to do in times when there’s not a potential s 44 application able to be brought,” she said. “But, at the same time, people are rearranging their personal lives as well and entering new relationships. So we’re just going to have to take care to educate clients.” ■

 

Missed ADLS’ Lawyering for 21st century relationships seminar? Purchase the On Demand course now.

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