Protecting Your Property and Assets When Buying Your First Home
Schnauer & Co often have enquiries about how to protect your assets when purchasing a property in circumstances where there may be an unequal contribution towards a joint purchase or an imbalance of wealth between a couple. It is common to be more cautious when one party has children from a previous relationship and they want to ensure they have their children’s best interests at heart. Or if one party has other assets which they want to keep separate from joint assets and/or if one party may be receiving a gift or inheritance. We touched on this topic in our earlier article “Legal Toolkit: Do I need a Contracting out Agreement or a Property Sharing Agreement?”
Ownership options
It is usually assumed that the property will be owned as "joint tenants" which means that on the death of one of you, ownership of the property automatically passes to the survivor by operation of law.
Alternatively, you decide to have ownership registered as "tenants in common in equal shares". This would mean that on the death of one of you that person's share would not automatically pass to the other by operation of law but would be dealt with in accordance with that person's Will.
Estate Planning
Your Will can set out how your share in the property should be dealt with on your death. For example, it could leave all or part of your share to your partner or allow your partner to use your share for life, with the property eventually passing to your children or other beneficiaries.
Many first home buyers assume they do not need a Will yet, but your home is often the most valuable asset you own. Without a Will, your partner or family can face lengthy and stressful processes to deal with your estate. Having a valid Will ensures your wishes are clear and makes things much easier for those you leave behind.
It is also important to have Enduring Powers of Attorney (EPAs) in place, so someone you trust can make financial decisions about your home on your behalf if you lose capacity.
Contracting out Agreement under Property (Relationships) Act 1976 (“Act”)
If you are buying your first home with a partner, it is preferable that from the outset you set out clearly in this agreement how you intend the property to be owned and your respective shares in it in the event that you later separate or sell the property. It could also cover such matters on how you will fund the purchase and any improvements, how you will pay the ongoing costs and may even provide for an option to purchase in favour of one of you should you separate.
In general terms, the Act provides that once you have been in a “de facto” relationship, marriage or civil union for 3 years, there is a presumption that “relationship property” will be divided equally if you separate or if one of you dies and the survivor challenges the deceased partner’s Will (unless you enter into a Contracting out Agreement).
As such, you cannot expect to just state shares on the title and this is how any share will be distributed on the sale of the property after a relationship has come to an end. If you are in a serious relationship at the time of purchasing the property, or contemplating entering into one, you still need to have a Contracting out Agreement prepared, and independent legal advice is required for one of the parties. It is also a good idea to update this agreement over time and especially as circumstances change (e.g you have children, purchase more property etc). The firm that prepared the agreement can act for one party but the other party needs to seek that independent advice before signing the agreement. If you are interested in a Contracting out Agreement, then this should be executed before settlement.
Relatable scenarios
To bring this to life, here are a few examples we often see:
First Home with Unequal Deposit:
You buy your first home together with your partner. You pay a larger deposit (with help from your parents), while the ongoing mortgage payments is shared equally with your partner. A Contracting Out Agreement can record that your initial contribution is recognised before any remaining equity is shared equally.
Inheritance involved:
You receive a $100,000 inheritance and use this towards your first home with your partner. You sign a Contracting Out Agreement to ensure that if you separate, the $100,000 remains your separate property.
Unequal incomes or financial risk:
Your partner is currently studying. You earn significantly more and contribute much more to your joint mortgage with your partner. A Contracting Out Agreement can clearly define how you are to divide the home in the event of separation.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
You can contact the team at Schnauer & Co. by getting in touch with Kim Hunt.
Kim Hunt
Senior Registered Legal Executive/Conveyancer
Email: khunt@schnauer.com
DDI: 09 892 0351
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