Spouses' and Partners' Rights to Property

Monday 27 May, 2024

Sutton v Bell – Transfer of Property Made Before the Commencement of a De Facto Relationship

Section 44 of the Property (Relationships) Act 1976 (the Act) gives the Court authority to set aside a transfer or disposition of property if it has been made to defeat the rights of a spouse or partner. Sutton v Bell has ruled that section 44 can apply to transfers or dispositions made before a de facto relationship has begun. Tompkins Wake Partner Zandra Wackenier was part of the team acting on behalf of the appellants. She suggests the decision creates a broader scope for relationships to fall under the Act.

Sutton v Bell

Mr. Sutton and Ms. Bell were in a de facto relationship for approximately 7 and a half years. Before the de facto relationship started, but after Mr Sutton started seeing Ms Bell, he transferred his home into a newly settled trust. Upon the parties' separation, Ms. Bell applied under section 44 of the Act. She claimed that Mr. Sutton had transferred the property into the trust to defeat her claim or rights under the Act.

The Supreme Court identified and determined the following issues:

1. Can section 44 apply to a transfer made before the commencement of a de facto relationship?
2. At what point does section 44 apply to a transfer made before the commencement of a de facto relationship? And
3. If section 44 applies, was the transfer by Mr. Sutton made to defeat the claim or rights of Ms. Bell?

Can section 44 apply to a transfer made prior to the commencement of a de facto relationship?

The Supreme Court found no reason that section 44 should apply only to transfers made after a marriage, civil union or de facto relationship has begun. This was supported by the wording of section 44. The section uses the general terms ‘person’ and ‘property’, other provisions of the Act use the phrases ‘spouse’, ‘partner’ and ‘relationship property’. Case law showed that section 44 can apply to transfers made when the other party has no claim or rights to the property, but where a claim may arise in the future.

At what point does section 44 apply to a transfer made before the commencement of a de facto relationship?

The Court established that section 44 can apply to transfers that are made before a de facto relationship has begun, if a clear and present intention to begin a de facto relationship existed when the transfer was made. The determination of this intention requires an objective evaluation of the relationship's circumstances.

Mr. Sutton and Ms. Bell’s relationship showed signs of permanence and therefore a clear and present intention to commence a de facto relationship existed. The relevant factors were that:

• The parties were in an exclusive relationship of 16 months when the transfer was made.
• The parties had lived together for eight months.
• The parties were a serious and committed couple.
• The parties appeared as a couple to family and friends.
• Ms. Bell spent a holiday with Mr. Sutton’s family members overseas.
• The parties were a part of both mundane and significant events in each other’s lives.

Was the transfer made by Mr. Sutton to defeat the claim or rights of Ms. Bell?

Based on the facts of the case, the Court did not find it necessary to establish dishonest intent. What was relevant was that Mr. Sutton had transferred the property with the knowledge that it would defeat Ms. Bell’s claim or rights. This knowledge was sufficient to show there was an intention to defeat a claim or rights. Factors that showed Mr. Sutton’s knowledge included:

• Knowledge that his property would be a family home and subject to equal sharing under the Act. Knowledge that a trust could prevent this division.
• Mr. Sutton had received legal advice on the matter.
• Mr. Sutton had no children at the time.
• The lack of time between the creation of the trust, the commencement of the de facto relationship and when the disposition was made.

Outcome and Effect of the Decision

The appeal was dismissed. Overall, it was held that section 44 can apply to transfers of property made before a de facto relationship has begun. What is necessary is that a clear and present intention to commence a de facto relationship exists and that the transfer was made with the knowledge it would defeat a claim or rights.

Tompkins Wake’s Zandra Wackenier provides her insights. The takeaway from this case is “that now with even more uncertainty regarding the status of relationships that can be captured by the Property (Relationships) Act, the only certain way to avoid the provisions of the Act is to enter into a contracting out agreement, and the earlier the better.”

If you would like advice on whether you need a contracting out agreement, please contact one of our family specialists.