A contracting out agreement is also known as a prenuptial agreement (prenup) or a relationship property agreement. A prenup is a contract between partners that states who owns what and how to divide up a couple’s property, or assets, in the event of separation.

By making a contracting out agreement, you and your partner can “opt out” of the “normal rules” which normally apply under the Property Relationships Act 1976 (the ‘Act’). The Act allows couples to enter into a private agreement and details how the Family Court might divvy up shared assets.

This prenuptial agreement is for couples or parties intending to enter into a relationship with significant assets, which may be relationship property. Remember – your agreement will not work (it won’t be legally binding) if you do it yourself and it doesn’t comply with the formal requirements. 

If you are already in a relationship and looking to separate, you can find more information about separation agreements here.

How might the Court split our relationship property?

A Court will try to balance the division of property between couples. However, the Court recognises that there might be unequal bargaining power between couples, so the Act encourages couples to decide how to divide relationship property. This means you both choose how you want to separate your assets if your relationship ends.

When can I create a contracting out agreement?

Usually, couples will get contracting out agreements when they enter a new relationship, de facto relationship, or are considering marriage or a civil union.

As with most things, it’s best to get one as early as possible if you think you will need it. This could avoid awkward conversations or potentially expensive proceedings later down the track.

How do I get a contracting out agreement?

The parties will need an agreement in writing, and each party will need to receive independent legal advice on the written agreement. It must be signed by both parties and certified by their independent lawyers indicating they have advised on the implications of the agreement. Agreeable has helped hundreds of Kiwis get a certified agreement with our simple, 100% online process. 

What are some issues to be prepared for?

Firstly, ensure that your partner is willing to get a contracting out agreement. As this process is voluntary, both parties must be committed.

A common issue with contracting out agreements is that one party may be unaware they are giving away their rights without understanding the consequences of signing the agreement, or what they are entitled to under the Act. The certification system prevents such misunderstandings.

When seeking independent legal advice, the lawyer must advise you whether to sign the agreement or not, or they may suggest better terms. Then, the lawyer witnesses each party’s signature and certifies that they have clarified the effects and implications of the agreement. They will also certify that the contract appears fair. Fair doesn’t necessarily mean 50/50, but it needs to show that it is not a “serious injustice”.

How do I make sure our contracting out agreement is fair?

The Property Relationships Act 1976 also attempts to prevent one partner from entering an agreement if there is evidence of undue influence from the other partner.

A court can set aside a contracting out agreement even if it satisfies the criteria under the Act. This occurs where, having regard to all the circumstances, the court believes the agreement would cause serious injustice. The Court will consider:

  • whether the agreement was unfair or unreasonable in light of all the circumstances at the time it was made;
  • whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties);
  • the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering the agreement and any other matters that the Court considers relevant.

The best way to ensure your agreement is fair might be by asking a trusted person. You can run this past family or friends for their opinion of your agreement terms. Contracting out agreements aren’t an ironclad guarantee. However, they will help provide certainty and reassurance. This will save you time and money should there be a dispute over assets in the event of a separation (or death).

Closeup of a couple signing a contracting out agreement.
Contracting out agreements could save you time and money in the long run in the event of a separation

I brought ‘x’ into our relationship. When does our separate property become relationship property?

If one party brings significantly more assets to the relationship, both parties will have to define what assets could be classified as separate property and ‘relationship property‘. The Courts will recognise if the non-owning party contributes to any increase in value of the other partner’s separate property. This increase is deemed ‘relationship property’ and thus subject to equal sharing.

The general rule for separate property is that it remains the property of the partner who owns it and does not have to be divided when the relationship ends. For example, gifts, property acquired while not together, increases in separate property value, and any income derived. Separate property can become relationship property if used for family purposes. 

Note that this may include indirect contributions too. Contributions do not have to be financial ones. For example, looking after the family home or children can be deemed a contributing factor. The Courts will take this into account when determining the division of property.

When should we update our contracting out agreement?

Your agreement will not last for an eternity. It won’t cover all future assets that you acquire throughout your relationship which might be considered relationship property. The longer you leave an outdated contracting out agreement, the higher your risk. It is safe to update your agreement when your circumstances change. This might be after a particular event or every couple of years.

We are heading into a new relationship. What if we start a family?

Undoubtedly, children can add complexity to your agreement – and the relationship. If you plan to start a family, our lawyers will advise whether this is a factor to consider. It will likely mean that additional clauses will need to be drafted into your agreement. This is to take into account what happens if one partner has to take time off to care for the children.

We have agreed on what’s mine etc. – what’s next?

Each party will need the contracting out agreement certified by an independent lawyer. Agreeable provides this service with an affordable fee to make it as simple, stress-free, and predictable as possible for you and your partner. However, our lawyers are independent, which means they will have your best interests in mind.

Our situation is complex. Where do we go to for help?

Agreeable always does a preliminary assessment to determine whether a contracting out agreement suits your specific circumstances. We also have the option of our lawyers providing you with tailored legal services. Please enquire with us about your relationship property issues. We will see how we can help.

Click here to find out more about how Agreeable can help you to create an agreement.