Couples who don’t have a contracting out agreement (pre-nup) tend to regret it, survey finds

COUPLES TAKE A SIGNIFICANT RISK IF THEY DECIDE NOT TO SIGN A FORMAL CONTRACTING OUT AGREEMENT

A recent study by the University of Otago1 has found that 81% of those surveyed did not have a contracting out agreement (also known as a “pre-nup”). When relationships didn’t work out, only 16% of couples followed their original intentions regarding how to deal with the split. This inevitably adds stress and resentment to the already stressful time of a breakup.

For couples that did have a formal (lawyer-created) contracting out agreement, the compliance rate was significantly higher, 63%. Where couples tried to create the contracting out agreement themselves (without using a lawyer), the compliance rate was only 21-29%.

The lesson seems clear: you take a significant risk if you decide not to sign a formal contracting out agreement to protect assets and instead rely on an informal agreement.

What is a contracting out agreement?

Contracting out agreements (COAs) set out how your property (any, not just real estate) will be divided if you and your partner ever separate. These agreements are not just for married couples. You can also have an agreement if you are in a de facto relationship. If there is no agreement, then the Property (Relationships) Act 1976 will decide for you how your property will be divided up once your relationship reaches a certain point (typically three  years). It is usually prudent to get an agreement in place before the three year mark.

What else did the survey participants say?

The survey also asked participants how they felt about having a formal or informal COA (or none). There were common themes in the answers, such as participants regretting not having a contracting out agreement and, in hindsight, wishing they had one. Some wished they had protected the family inheritance, or their pre-relationship home, while others expressed that they were too scared to raise the issue with their partners. Perhaps unsurprisingly, the survey also noted:  

“Most participants who had experienced separation said they now have, or will have, a contracting out agreement for their next relationship.” – University of Otago Survey

Are contracting out agreements actually helpful?

The survey showed that COAs were helpful as they:

  • provided greater clarity and certainty for the parties
  • provided evidence of what had been previously agreed
  • enabled property to be divided more easily, quickly and fairly
  • removed stress and conflict, and
  • ensured the parties are not financially disadvantaged in the property division.

Barriers to getting a contracting out agreement

The perception of the costs of setting up a COA was highlighted as a barrier to couples getting a formal agreement. However, the costs of not having a formal agreement can significantly outweigh the initial investment in good legal advice. If you separate without a COA, you may find yourself dependent on your lawyer to advocate for you during a stressful and emotional time. A COA will allow you to simply put its terms into action without the need for further extensive advice and litigation.

Other couples don’t want a COA because they feel it is “cynical” or “unromantic”. Rather than thinking of a COA as “planning to separate” it is more helpful to treat it as a form of support for you both – an insurance policy to save you both stress in case that rainy day ever comes.

“I would say it could be hard for any couple starting out to make such an agreement as you don’t enter thinking you’ll separate. I didn’t. But pre-planning is really wonderful. Knowing what a split would involve helps for knowing boundaries and also what each party would legally be entitled to – no surprises.” – Survey respondent

Other survey respondents believed placing their assets in a trust would be enough to protect them in the case of a relationship breakdown. However, trust law has evolved, and currently does not swing in favour of protection of relationship property. A COA provides far more protection for your assets than a trust, and far less ongoing expense.

How can we help?

If you like to have an initial chat about setting up a contracting out agreement, or to get started creating one, our highly experienced specialist relationship property team is happy to help – please give us a call. You can view our relationship property team here or make an appointment here

WRMK Lawyers takes all reasonable care to make sure that the information in this article is up-to-date and accurate at today’s date. It is necessarily general information and not intended as legal advice to be relied upon.

Our thanks to Yasmine Kidwell-Smith for writing this article.