How to protect your personal finances in a de facto relationship

Sometimes relationships just don’t work out — but how can you ensure your finances are protected?

Yesterday, the ABC brought you Millie’s* story — a woman who was forced to sell her home of nearly 30 years after a family court ruled her ex-de facto partner’s tax debt was a shared liability.

Court proceedings revealed her ex, a sole trader, had not been filing his tax returns for years. While Millie was adamant she never knew about his debt, the court found otherwise, and ordered it be included in a property settlement.

The ABC spoke with two family law experts to discuss de facto relationships, debts and how to protect yourself.

What is a de facto relationship?

You’ve probably heard of the term ‘de facto relationship,’ before, but you might not understand what constitutes one.

In essence, a couple is considered de facto if they aren’t legally married but live together on a “genuine domestic basis”, generally for at least two years.

But you don’t have to live together to be considered de facto.

Avokah Legal principal lawyer Tayla Kilkeary said the court considered a multitude of things when determining whether a couple was in a de facto relationship and for how long.

“Duration of the relationship is one of them,” Ms Kilkeary said.

“We look at nature of the residence, financial dependence, whether there are any children [and] general commitment to having a shared life.”

Do all debts become shared debts when you become de facto?

No. Ms Kilkeary said it depended on the nature of the debt, how it was incurred and a host of other factors.

When it comes to debts one partner may not be aware of, “it’s all about acting in good faith”, she added.

“Getting all the evidence that you possibly can from your side of the ledger [and] inquiring about stuff that you’re not quite sure about of your partners’,” she said.

Two people seated on opposite ends of a sofa while clinching on their rings
The court has the power to adjust debts in the event of a relationship breakdown. (PexelsCottonbro Studio)

Stephen Page, the director of family and fertility law firm Page Provan, said the court had the power to adjust debts in the event of a relationship breakdown.

“Sometimes [debts] are run up by one party as opposed to the other,” Mr Page said.

“And if it looks like a party has engaged in wastage — for example, with gambling or bad business opportunities — then the court can make an adjustment for that.”

What can you do to protect yourself?

Ms Kilkeary believes couples should look at a Binding Financial Agreement (BFA).

It’s Australia’s version of a prenup — a contract that a couple enters into that outlines how their finances and property will be divided if their relationship ends.

“A BFA is always going to be the best thing you can do from a point of law, but keeping evidence is probably the second-best thing you can do,” Ms Kilkeary said.

“I would always advise people to do both those things in conjunction.”

Mr Page said a BFA ensured couples “have the negotiations up-front” in the event the relationship goes “pear-shaped”.

“[You’re] not entering into the lottery of what you might end up with if you went to court and go through the negotiations process,” he added.

While Ms Kilkeary said a well-drafted and up-to-date BFA “is about as watertight as you can get”, if it’s not drafted properly or if circumstances have changed, “that can make that agreement null and void”.

Understanding your finances

Ms Kilkeary said it’s important to have a good understanding of your own and your partner’s finances, before and while you’re in a de facto relationship.

That includes keeping a record of “all of the contributions you’ve made”. 

“If you brought a home into the relationship, have a good idea [of] what the home was worth,” she said.

“Also have a good idea of what any loan was for on that home, so you can demonstrate, if you separate, how much you brought in.”

A 'sold' sticker being placed on a 'for auction' sign outside a house.
Ms Kilkeary said it’s important to know the value of your home if you’re bringing it into a relationship. ( ABC News: Ian Cutmore )

Ms Kilkeary said it’s also important to keep bank statements.

“Some people come to me and say they brought in savings of $300,000 into the relationship, but there’s no evidence of that,” she said.

“So it’s really hard for the court to take things like that into account unless the other party agrees.”

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