Do I Need a Contracting-Out Agreement?

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Trusts / Asset Planning

Do any of the following ring a bell?

  • I’ve just met someone, and things are moving fast
  • We’ve been together a while now, and are talking about moving in together
  • We’re living in my house, and renting out the other one
  • Looking after my kids is a full-time job, and my partner works in the family business
  • After everything that’s happened, I didn’t expect to meet someone again
  • I’m spending a fair bit of time renovating the rental property – just as well I’m a builder!
  • We met at university, but I gave up my career to focus on the kids
  • I help out with the accounts and the odd day here and there in the business
  • My friend’s marriage has just ended – it got messy, and really made me think
  • Trusted friends are suggesting I see a lawyer to get advice
  • I’ve inherited a nest-egg, and we want to use it to do-up the house

Any one of these situations should make you think about your relationship, and how it could affect your property and finances.

Relationship property considerations

A new – or any - relationship can and should be a time of great excitement and hope for the future. It can also be a time of uncertainty and unspoken concern, as couples discuss, or avoid discussing, finances and property. Today most people are aware that relationships can change, or end, over time. Such changes can mean couples are faced with the need to share or divide property that may have originally been acquired separately, or that may be acquired during the course of the relationship. Not everyone faces the same circumstances.  A younger couple meeting at work or university and having a small or similar asset base, may be in a different position to an older couple with divergent asset bases, and children from previous relationships to consider. These variable factors can make discussing property a unique challenge with different perspectives.

When am I in a relationship?

Whether two people consider they are in a relationship will vary according to personal values and perceptions. A marriage or civil union is usually definitive proof of a couple’s intentions. The commencement of a de facto relationship can be less certain. The Property (Relationships) Act 1976 sets out a range of factors that a court can use to determine whether a de facto relationship exists. As a starting point, both partners must be aged 18 years or older and live together as a couple.

The court will also consider other aspects, including:

  • the duration of the relationship;
  • the nature and extent of any common residence;
  • whether or not a sexual relationship exists;
  • financial arrangements; and
  • the way the couple portray themselves to family and friends.

In New Zealand, in the event of a separation after a qualifying relationship of at least three years, either partner has the right to make a claim for an equal share of relationship property. In some circumstances, for example if there is a child of the relationship, the length of a qualifying relationship can be shorter.  A qualifying relationship has been found to exist in some situations where a couple maintain separate residences but visit each other. It may also be found to exist despite a level of financial independence. The court will assess the overall situation between the couple in deciding whether a relationship exists and when it started.

Equal sharing of property does not fit with what I want if our relationship ends

For some couples, this type of equal property division may not be what they want. Two people can contract out of the presumption of equal sharing by obtaining independent legal advice and signing a written agreement defining their property, setting out their intentions, and the way their property is to be divided in the event of a separation. This type of agreement is sometimes called a pre-nup or a contracting-out agreement. The agreement can be discussed, negotiated and signed at any time, although we generally recommend property matters are discussed as early as possible in the relationship.

What is in an agreement?

The agreement can cover a range of property assets, liabilities and financial situations, including multiple homes, inheritances, income, family businesses, farms, shares or bonuses, antiques and classic cars, artwork and specific collections, and investments. Another situation that may need to be considered is the potential for an increase in the value of property, for example by one partner carrying out renovations on the other’s property.

In order to be valid the preparation of the contracting-out agreement must comply with certain formalities, including the need for each partner to have independent legal advice, and the disclosure of all assets and debts. Failure to comply can result in a court overturning an agreement.  An agreement can also be overturned if a court finds its application would cause serious injustice to one of the parties.

An appropriately drafted contracting-out agreement is nevertheless an important safeguard for many couples.

Need more information or help?

The team at Brookfields can provide practical advice and assistance tailored to your specific circumstances. Please let us know how we can help.

The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.

© Brookfields Lawyers 2020 – All Rights Reserved

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