De facto relationships: sustainability of your assets
Unlike a marriage, there is usually no ceremony or certificate marking the start of a common-law relationship. There is also no divorce decree confirming the conclusion of a de facto relationship. The vast majority of de facto relationships are unregistered. Sometimes one party claims a de facto relationship exists and the other claims it does not, and the date one ends can be controversial and have significant consequences.
In an aging population, people form new relationships later in life. One or both have often accumulated wealth. It’s a sad reality that a spouse can have complicated health issues, including cognitive impairments such as dementia, making a particularly difficult situation for both parties. A third party with a power of attorney can intervene. The relationship can completely change.
The High Court of Australia recently considered the principles relevant to 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 to a de facto relationship has lost his capacity.
The Federal Circuit and the Family Court of Australia have the power to make an order for the division of property in a common-law relationship upon the breakdown of a common-law relationship. The Family Law Act 1975 does not define what constitutes the “breakup” of a relationship. This recent case confirms that each case is considered on its own particular facts and circumstances.
deterioration of capacities in the context of a de facto relationship
Ms. Fairbairn and Mr. Radecki began living together on a genuine domestic basis (living in a common-law relationship) in late 2005 or early 2006 and agreed to separate their assets and liabilities, but lived together in the house belonging to Mrs. 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 house remained the property of Mrs. Fairbairn.
In 2015 Ms Fairbairn began to suffer from rapid cognitive decline and in early 2017 she was diagnosed with dementia.
Between 2015 and 2017, as Ms Fairbairn’s health deteriorated, the parties spent more time apart. They occupied separate rooms in the house, with their own belongings in their respective rooms. At the start of 2017, Mr Radecki planned a three-month holiday abroad without Ms Fairbairn, whose health was “quite precarious” at the time.
In mid-2017, Ms Fairbairn qualified for residential aged care. On the advice of her doctor, when Ms Fairbairn had the capacity to do so, she executed a lasting power of attorney in favor of her adult children.
Upon his return from overseas, Mr. Radecki was very unhappy with Mrs. Fairbairn’s children. He convinced Mrs 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, after which he helped her revoke the power of attorney and replace it with a lasting power of attorney in favor of him and his brother.
Shortly after, following a fall by Ms Fairbairn, Mr Radecki arranged for a solicitor to attend to her to draw up an updated will. The new will, duly executed, was more favorable to him than his previous will. It gave him the right to occupy the house after his death, for his lifetime. On the other hand, the previous will gave him the right to live in his property for six months after his death.
In 2018, an administrator was appointed to make health and welfare decisions on Ms Fairbairn’s behalf, including her move to an aged care facility where she has since resided. In 2019, the trustee deemed that the de facto relationship had broken down irretrievably and commenced proceedings in the then Federal Circuit Court seeking property division orders under the Civil Law Act. family. An order sought by the trustee was for the sale of Ms. Fairbairn’s property. Mr. Radecki did not consent to the order sought.
The trial judge found that Mr Radecki’s conduct during the disappearance of Ms Fairbairn’s mental capacity was inconsistent with a “fundamental premise” of their relationship, namely strict separation of property. The trial judge found the relationship broke down around May 25, 2018, when Mr Radecki suggested that Ms Fairbairn’s accommodation should be paid for from her superannuation and that he continue to live in her home .
The trial judge found that, based on an objective assessment of Mr. Radecki’s conduct, he demonstrated an intention to terminate the common law relationship with Ms. Fairbairn.
the full court appeal
Mr. Radecki appealed the decision to the Full Chamber of the Family Court. The Full Court disagreed with the trial judge. The Full Court held that Mr. Radecki’s actions were not fundamentally inconsistent with a continuing de facto relationship. Some of his actions have been considered “bad behavior”, but such behavior is “too often the hallmark of a relationship”. The Court found that the evidence showed that there was a dispute between Mr. Radecki, the trustee, and Ms. Fairbairn’s children, as to how best to manage Ms. Fairbairn’s affairs.
The administrator on behalf of Ms Fairbairn applied for 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 on 25 May 2018. In forming this opinion, the Court held that from that date the parties no longer had a relationship. living together on an authentic domestic basis. This conclusion did not stem from the end of the parties’ cohabitation, nor from Ms. Fairbairn’s mental incapacity. These are not the determining 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?
- First, the Court strongly rejected the assertion that a de facto relationship necessarily ends when the parties to the relationship physically cease to live together. Ms Fairbairn’s move to the aged care facility was not necessarily the end of the de facto relationship.
- Second, the Court held that while de facto relationships often and generally mean cohabitation of a residence by a couple for a period of time, cohabitation of a residence or residences is not a necessary characteristic for “living together on a truly domestic basis”. The Court ruled that two people, for a number of reasons, might not reside together, but would still be considered to be in a common-law relationship.
- The phrase “living together” should be interpreted to mean “sharing life as a couple”, Section 4AAA does not prescribe how a couple should share life together.
lessons for clients in de facto relationships
- Seek advice from a family lawyer to check on your relationship status to discuss asset protection or your right to a property settlement under the Act.
- To protect your assets in the event of a relationship breakdown, for more control and clarity, you can enter into a binding financial agreement (prior to the relationship breakdown). We can work with you to craft a bespoke agreement that may consider what happens if a relationship breaks down, family law implications as well as estate planning and elder law implications.
- If you are concerned about the financial well-being of your parents, you can seek legal advice about your concerns.