In June 2023, the Supreme Court delivered its decision on Sutton v Bell, a landmark case concerning Sections 44 and 26 of the Property (Relationships) Act 1976 ("PRA"). This decision marks a pivotal shift in the interpretation of key legal provisions governing property rights in relationships. The case of Mr. Sutton and Ms. Bell helps us understand why protecting assets has become an integral aspect of modern relationships and serves as a compelling example of the growing importance of prenuptial agreements in safeguarding individual interests.
The parties, Mr Sutton and Ms Bell met in July 2003. Ms Bell subsequently moved into Mr Sutton's Pt Chevalier property in February or March 2004. Later that year in November, Mr Sutton (with Ms Bell's knowledge), transferred the Pt Chevalier property to the Sutton Family Trust. The High Court found the couple commenced their de facto relationship between December 2004 and January 2005. The couple lived together at the property until their separation in September 2012.
Proceedings commenced in July 2017 when Ms Bell, invoking Section 44 of the PRA, claimed a half interest in the Pt Chevalier property on the basis that Mr Sutton only transferred the property to the Trust in order to defeat her entitlements under the PRA.
The Family Court awarded Ms Sutton a half interest and ordered that Pt Chevalier be transferred to Ms Bell and Mr Sutton as tenants in common in equal shares.
The High Court made the finding that although the parties were not in a de facto relationship at the date the property was transferred to the Trust, the disposition of the property was a disposition to which Section 44 of the PRA applied. The Court of Appeal dismissed an appeal against that decision.
Section 44(1) allows the Court to set aside a disposition "where the High Court, District Court, or Family Court is satisfied that the disposition has been made, whether for value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of any person under the PRA".
Before Sutton v Bell Section 44 was treated as applying only to a disposition of property occurring on or after a qualifying relationship under the Act had actually commenced. This is no longer the law. The Supreme Court's approach is that there is nothing in Section 44 that requires an interpretation that only dispositions made after the commencement of a marriage, civil union or de facto relationship are subject to the section. Section 44(1) can apply to a disposition of property to a trust that has occurred when the parties have not yet entered into a de facto relationship but have committed sufficiently to doing so.
The implications of this decision are significant for those proposing to make disposition of property to a trust. The Section 44 net has now been widened in its ability to catch and draw property back into the relationship property pool for division under the Act. The best way to avoid that is to have a Section 21 Contracting Out Agreement with your prospective partner to protect the disposition from claims.
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© McVeagh Fleming 2023
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.