Let’s say a couple buy a house – one person contributes 100% of the deposit and pays for extensive renovations that increase the value of the house, but both people legally own the house and are jointly liable for the mortgage repayments (ie, both their names are on the mortgage). If the couple separates and the house is sold, is the partner who did not contribute to the deposit or the renovations entitled to 50% of any profit made on the sale?

This scenario involves a common misconception about family law in Australia – that a person who is a legal owner of a house is automatically entitled to a 50% share of any profit upon separation. Let’s explore how scenarios like this would actually play out.

Family law 101

In Australia, legal ownership (ie, both parties being listed on the Certificate of Title) is pretty much irrelevant for the purpose of determining who gets what when people separate. The two most relevant factors are:

• The contributions (both financial and non-financial – more on this below) of each party both before, during and after the relationship; and
• The length of the relationship – generally speaking, the longer the relationship lasts, the more of a claim each person has over the property of the other.

The existence of a relationship (either a marriage or a de facto relationship) does not mean that property is (in a strict legal sense) co-owned. Each person can decide to own property in their own legal right, or jointly with the other person. However, the longer a relationship lasts, the more a person has an ‘equitable interest’ in the other person’s property, particularly a house. Equitable interests basically reflect the idea that determining ownership solely on the basis of legal title can be unfair.

Contributions to the relationship

Australian family law recognises both monetary (financial) and non-monetary (non-financial, eg homemaker and carer) contributions to a relationship. So, what happens in the above scenario will depend not just on who paid the deposit, for renovations and the mortgage repayments, but also on the distribution of household tasks like cleaning, cooking, laundry and washing up, as well as (where there are children of the relationship) who puts the kids to bed, picks them up from school and generally cares for them.

What can be said with certainty is there is no presumption of equal contributions, regardless of how long the relationship was. Obviously the longer a relationship is, the more the contributions of each party will typically even out. But it is not correct to say that a person is by default entitled to a 50% share of any profit on the house.

If, for example, the relationship lasts two years, what is more likely to happen is that the person who paid for the deposit and renovations will get a larger share of the profit (in particular, if they alone also paid the mortgage repayments). That’s because they made a greater financial contribution to the relationship, which was not ‘evened out’ by a similarly sized non-financial contribution. The outcome will also depend on other assets and liabilities the couple has, including cash, superannuation, HECS/HELP debt and credit card debt.

Is there any way to solidify the outcome before separation?

Some people want the security of knowing what will happen in the unfortunate event of separation. That’s where binding financial agreements (BFAs) come in. BFAs are essentially the Australian equivalent of a pre-nup – they involve ‘contracting out’ of the family law process. ‘Contracting out’ means that the usual legal rules determining what happens to property after separation – and in particular the guiding principle that the distribution be ‘just and equitable’ – do not apply. A BFA can be entered into before, during or after a de facto relationship or marriage. However, they can be costly to draft and there are strict legal requirements, including that both parties receive independent legal advice on the advantages and disadvantages of entering into the proposed BFA.

Conclusion

Deciding what happens to property after the breakdown of a relationship is not as simple as ‘I am entitled to half of everything’. The legal approach is much more nuanced, and depends on both the length of and the contributions of each person to the relationship. The only way to know for certain what will happen to your property after you separate is by entering into a BFA. Even then, BFAs can be set aside on various grounds including undue influence or if the legal formalities are not met. For example, a BFA was overturned in Hoult v Hoult [2013] FamCAFC 109 because the wife was not adequately advised of the disadvantages of entering into the BFA.

If the couple is on good terms, consent orders may be a good option, but legal advice is important to protect both parties and ensure no one is short-changed.

Note that the content of this blog does not apply in all jurisdictions, does not constitute legal advice, and should not be relied upon. You should seek legal advice in relation to any particular matters you may have. All opinions expressed are our own, not necessarily those of any organisations with which we are connected.