Contracting out agreements, commonly known as ‘prenups’ or prenuptial agreements, can be an awkward process for some relationships. But, in the event of death or separation, having one already in place can make the process of property distribution a lot easier and less of a hassle. New Zealand law has particular rules about the ownership and distribution of property in a relationship, if that relationship comes to an end. If you are not aware of these rules, this can lead to complications in the future. This article will cover the particulars of a contracting out agreement and help you figure out how it can work for your relationship. 

What Is a Contracting Out Agreement?

A contracting out agreement is when both parties to a relationship sit down and set out a written agreement that outlines how the couple’s property is to be distributed if they separate or one of them dies. Each party needs an independent lawyer advising them, and to be binding, the agreement must:

  • be in writing, and both parties have to sign it;
  • have a lawyer witness each party’s signature; and
  • the lawyers certify that they have given each party independent advice.

You can create and sign your contracting out agreement at any point in your relationship, but when it involves significant property or debt, it is best to sign one at the start of your relationship. There are two types of property in a relationship:

  1. relationship property, which is property that the couple owns jointly; and 
  2. separate property, which is owned by one party.

You will need to specify which property is which in the agreement. The agreement can be as tailored as you like. This includes:

  • not having to cover all of your property; and
  • not having to be an even 50/50 division.

If your relationship fails, it is much easier to refer to a contracting out agreement rather than go through a long separation settlement process that may involve the court.

Why Do I Need a Contracting Out Agreement?

In New Zealand, every marriage, civil union, or de facto relationship longer than three years will qualify to have their assets managed as a whole by the law. Under the current law, if you do not contract out of the law with a contracting out agreement, then the default position is that your relationship property is split 50/50 between the two of you if you separate. This covers most property, except for taonga and heirlooms.

However, this may not suit your particular situation. 

A common example is when you own assets before you start a relationship and you want to keep these in your name if the relationship ends. This could happen when:

  • you purchased your family home before your relationship started; but
  • you spent the past three years living together in that house.

Here, the law would count it as relationship property. This means you would each get an even share of the house, and that may not suit your situation. Some other possible reasons for a contracting out agreement include that:

  • some banks require one for mortgage approval;
  • you may not want to take on your partner’s student loan; and
  • you or you partner have a trust.

Can the Court Set Aside a Contracting Out Agreement?

It is important to be thorough and comprehensive in your contracting out agreement. If not drafted out correctly, the court can declare the agreement invalid and set it aside. This means the court would distribute the property as it believed the circumstances called for. The court can set aside your agreement if it:

  • did not follow the proper drafting process when you created it. This means complying with the formal requirements the law has set. If you do not make sure of this, the court could rule it as unjust;
  • is unfair as a whole, and it would be a serious injustice if the agreement would continue. This may be due to the uneven nature of the agreement, or if the circumstances have changed so much since you created the agreement that it is unfair now; or
  • there was pressure or duress at the time of the contracting out agreement’s initial drafting. For example, demanding a signature the day before the wedding when one partner is unwilling.

It is important to keep your contracting out agreement up to date, to avoid any unfair circumstances that may arise. It is also good to update it when significant life changes happen. For example, this includes having children or entering into a family business.

Key Takeaways

It can be a good idea to contract out of default relationship property law with a contracting out agreement if you want to tailor property distribution according to your specific circumstances. The default position is an even 50/50 division, and this may not be appropriate for your situation. Drafting up your agreement at the beginning of a relationship or during one can save time and money that you would spend on a lengthy divorce or separation settlement process. If you want more information, or help with your contracting out agreement, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

FAQs

What is a contracting out agreement?

A contracting out agreement is also known as a “prenup” or a prenuptial agreement. It is a contract you sign with your partner at the start of or during your relationship, outlining how your property is to be divided at the end of your relationship – whether that be through death or separation.

Why would I need a contracting out agreement?

A contracting out agreement is a good idea if there are certain things your partner owns that you do not want to take on – such as student loan debt. It also saves a lengthy divorce or separation settlement process if your relationship does go south.

When do I need a contracting out agreement?

In New Zealand, the default position under the law is that all relationship property is split 50/50 between the two of you if your relationship ends. You start being covered by relationship property law if you are married, in a civil union, or have been in a de facto relationship for more than three years.

What does a contracting out agreement cover?

A contracting out agreement outlines what property is “relationship property” and what is “separate property”. Relationship property is the property you own jointly as a couple, and separate property is what you own separately, in your own capacity.

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