Contracting Out Agreements, or pre-nuptial agreements, can sometimes seem complex or daunting. In this article, we outline the 10 questions we get asked most often, so you can approach Contracting Out Agreements with confidence.

  1. What is a Contracting Out Agreement?

A Contracting Out Agreement (also known as a “pre-nuptial agreement” or “prenup”) is a written agreement setting out how a couple’s property will be divided, in the event of separation and/or death. They are often used to contract out of the general rule of equal-sharing of relationship property under the Property (Relationships) Act 1976 (“the Act”).  

  1. What can an Agreement cover?

An Agreement can cover as much or as little as the couple would like. That could be all property they have (including future property, such as income), or only certain items of property.

For example, if one person wanted to use their inheritance to repay a joint mortgage on the family home, they might want to sign an agreement providing for that amount to remain their separate property. Although an inheritance is usually separate property to begin with, by putting it into the family home it will typically lose its separate property status and become relationship property. 

  1. When should an Agreement be signed?

An Agreement of this nature can be signed at any time during a relationship. However, it should ideally be signed before the relationship property laws under the Act begin to apply. Generally, that is once a couple has lived together in a de facto relationship or married, or in a civil union (or any combination of these) for 3 years or more, although there are limited circumstances in which the Act can apply before that point.

For more information on de-facto relationships, see What is a De Facto Relationship, and De Facto Relationship While Living in Different Countries.

  1. Is an Agreement binding and enforceable? 

Yes, providing that it complies with the following formal requirements:

  • The Agreement must be in writing and signed by both parties;
  • Each party must have independent legal advice before signing the Agreement;
  • Each party’s signature must be witnessed by a lawyer; and
  • The lawyer who witnesses the signature of a party must certify that they have advised as to the effects and implications of the Agreement.

It is important to be aware that even if an Agreement complies with these requirements, a Court has the ability to set it aside if enforcing the Agreement would amount to “serious injustice”. If an Agreement is set aside, a division of property is usually dealt with as if the Agreement never existed. See Family Court Sets Aside Contracting Out Agreement for further information.

Informal agreements couples make between themselves are of no legal effect (although you can, in very limited circumstances, apply for them to be upheld).

  1. Do I need a lawyer?

Yes, each party needs an independent lawyer; otherwise, the Agreement will not be binding.

  1. What are the benefits?

These are varied, but common benefits include asset protection and a desire to achieve certainty about how property would be divided in the event of separation and/or death. 

Contracting Out Agreements are particularly common when one person has considerably more wealth than the other, there are children from previous relationships, or there are particular items of property that one person wishes to keep separate.  

  1. How should I raise this with my partner?

This can be a difficult topic. While an Agreement can be signed at any stage in a relationship, our experience tells us discussing this topic early on in the relationship is best.  

  1. What will it cost?

This varies greatly depending on the complexity of the Agreement, and the time it takes to draft, advise on and negotiate the terms. While some people are reluctant to spend much money at all on putting an Agreement in place, our view is that it is important to get it done properly at the outset and have an Agreement that is as watertight as possible. A thorough Contracting Out Agreement can save people considerable amounts of money and legal fees in the long run.

  1. Once it is signed, can I forget about it?

No, it is important that Agreements are regularly reviewed (with the benefit of legal advice) to ensure that the terms do not become seriously unjust, as that can leave them vulnerable to being set aside by the Court.

How often an Agreement should be reviewed will depend on particular circumstances, so it is best to seek specific advice on that.

  1. What information should I prepare for the first meeting with a lawyer?

We find that a brief written history of the relationship (key dates, names and dates of birth of children etc) and information about what each party owns, including approximate values, can make the first meeting more efficient.

 

FOR MORE INFORMATION

If you have any questions about these issues, please feel free to contact our Wellington and Rotorua based family law experts:

 

 

 

Contracting out agreements, or prenups, being reviewed.