The Property (Relationships) 1976 (“Act”) sets out the rules for the division and distribution of a couple’s property (whether they are a de facto couple, in a civil union, or married) on their separation or on the death of either of them [1].

Generally, where a couple have been in a qualifying relationship for three years or more, all relationship property will be divided equally.

A couple can make their own arrangements as to how they want their property dealt with at the end of their relationship by entering into a contracting out agreement under the Act, commonly referred to as a pre-nup.

Contracting out agreements can cover as much or as little as a couple would like, but there are strict rules that need to be followed.

Here are some key points to know about contracting out agreements in New Zealand:

1. What can contracting out agreements cover?

Contracting out agreements are typically used to specify how assets and liabilities will be divided at the end of a relationship. They can also provide for the rules of ownership during the relationship (for example, who will pay what) and rules for the division of property (for example, how property will be valued and sold).

2. Why do you need an agreement?

Contracting out agreements are common where one person enters a relationship with significantly more property than the other and wants to keep specific assets separate or in second-time around relationships. However, there are many different reasons why people may consider a contracting out agreement.

3. When do you enter an agreement?

A contracting out agreement can be entered into at any time during a relationship. However, it’s usually best to enter into a contracting out agreement at the beginning of a de facto relationship, marriage, or civil union (or immediately before it begins).The rules should be clear from the start; therefore, there is no pressure on one party to sign an agreement before any important dates, like a wedding, or, in the case of de facto couples, reaching the three-year mark in their relationship.

4. How does a contracting out agreement work?

To be binding, a contracting out agreement must be in writing and signed by both parties. Each party must also have independent legal advice (that is, from their own lawyer) before signing the agreement. The lawyers must each witness their client’s signature and certify that they have explained the implications and consequences of signing the agreement before the client signed it.

[1] In a recent decision, the Supreme Court determined that the Act can, in certain circumstances, also apply to polyamorous relationships.

Informal agreements that a couple might make between themselves (whether they’re in writing or not) are of no legal effect (although, you can, in limited circumstances, apply for them to be upheld).

5. Do you have to make a contracting out agreement fair?

The court can set contracting out agreements aside if the terms would amount to a “serious injustice” should the agreement to remain in place (which may include the agreement being unfair or if one party was under duress to sign).

6. What about trusts?

Special consideration must be given to trusts and trust owned property because the interplay between trusts and relationship property under the Act can be complex.

7. Once a contracting out agreement is signed, should you forget about it?

No, it is important that contracting out agreements are reviewed regularly to ensure the terms do not become seriously unjust because that can leave the agreements vulnerable to being set aside by the court.

How often an agreement should be reviewed will depend on the particular circumstances (including changes to property, getting married, the birth of a child, or simply the passage of time).

8. How do you raise the topic of a contracting out agreement with your partner?

For some, this is an awkward topic. However, it’s always best an agreement is discussed early on in a relationship. We can give advice and guidance as to how best to broach the topic and the issues with your partner.

9. What will creating and finalising a contracting out agreement cost?

This varies greatly. So, the cost depends on the complexity of the contracting out agreement, the extent of a couple’s property, and the time it takes to draft, negotiate, and advise on the terms.

While some people are reluctant to spend money on a contracting out agreement at all, a contracting out agreement can save people considerable amounts of money and legal fees in the long run.

A contracting out agreement can provide certainty and peace of mind for both parties for the future.

If you have questions concerning contracting out agreements (or reviews of them), our experienced Family Lawyers can offer valuable insights and recommendations on tailoring an agreement that precisely fits your relationship. For more information, please contact Vonja Young, Michaela Barnes, or Seb Recordon.