Contracting Out Agreements – “Pre-Nups”

 

A contracting out agreement, also known as a “pre-nuptial agreement” or a “pre-nup”, is a written agreement that allows you and your spouse/partner to decide how your assets will be divided in the unfortunate event you separate, or one of you passes away.

These agreements are a proactive step to protect your property interests from being divided in accordance with the Property (Relationships) Act 1976. In general, if you have been living together as a couple in a “qualifying” de facto relationship for more than three years, you are married or in a civil union, then all “relationship property” is open for equal division.  Note that there are some exceptions to this, and property can be open for division in instances of shorter duration relationships.

 

What is “relationship property”

It is important to understand what is classified as relationship property, and what is not.

Relationship property usually includes:

  • the family home if owned by one or either partner, even if it was purchased before the relationship;
  • chattels, including furniture, fixtures, vehicles, boats etc;
  • any jointly owned property;
  • separate property that has been “intermingled” with relationship property, for example if an inheritance is used towards renovations on the family home;
  • all income earned and property purchased after the relationship began;
  • KiwiSaver, superannuation and life insurance policies (if any portion of these is attributable to the relationship); and
  • Debt acquired during the relationship, if it meets certain requirements.

Separate property is not open for division, and usually includes:

  • inheritance and gifts (although these can easily lose their status as separate depending on their use);
  • family heirlooms;
  • interests in a trust, and property owned by a trust; and
  • property obtained before the commencement of the relationship.

 

When might I need a contracting out agreement

Contracting out agreements are common when one person enters into the relationship with significantly more property than the other, where one person has contributed more than the other to a joint asset, where there are specific assets that a person wants to keep separate or where there are children from past relationships to protect.

A common example we come across is where one person already owned a home before a relationship, and wants their partner to move in but not to gain an entitlement.

Other examples are where your spouse or partner has significant debt that you do not want to risk becoming liable for, or if either partner has interests in family trusts that they want to ensure cannot be claimed against. While these are some of the most common reasons, there are many more situations where a contracting out agreement may be appropriate, and it is important to get specific legal advice on your particular circumstances.

A contracting out agreement can be specifically tailored to your situation.  For example, you can specify that only particular property is to be excluded from the relationship property pool, or that all of your respective property is to remain separate and there will be no sharing upon separation.

You can sign a contracting out agreement at any time during a relationship, but it is often easier to do so before the relationship property laws apply. While the idea of discussing a contracting out agreement with your spouse or partner may feel awkward and uncomfortable, it can save a lot of future stress and provide you both with certainty. It is important that you take legal advice, so you know where you stand and can consider how best to approach this conversation.

 

Legal advice

In order for a contracting out agreement to be legally binding, the agreement must be in writing and must be signed by both parties. Each party must receive independent legal advice on the agreement, their lawyers must witness their signature, and the lawyers also need to sign a particular certificate on the agreement itself.

 

For More Information

A contracting out agreement can be difficult and convoluted. It is important to consult with a family law expert to ensure that it is done correctly and properly protects your interests. 

 Our Rotorua family law experts:

 

See more of our family law articles here.

 

Marriage and Pre-nups