These days relationships are more diverse than ever, and so are the financial arrangements that come with them. For Kiwi couples, understanding “contracting out agreements” – often called pre-nuptial agreements or “pre-nups” – is becoming increasingly important. Far from being just for the wealthy or those anticipating a split, these agreements are a sensible tool for many couples to ensure clarity and fairness in their financial future.
So, what exactly is a contracting out agreement? Put simply, it’s a formal, legally binding document that allows couples to decide how their property will be divided if their relationship ends, either through separation or the death of one partner. Without such an agreement, the Property (Relationships) Act 1976 (PRA) dictates how relationship property is shared, generally assuming an equal split regardless of who contributed what. While the PRA aims for fairness, it doesn’t always suit every couple’s unique circumstances.
Think of it as a “no surprises” policy for your financial arrangements. The “ick factor” that once surrounded these agreements has largely disappeared, as people increasingly recognise the value of open communication and proactive planning. It’s about having an honest conversation with your partner about your individual financial situations and future aspirations, ensuring both parties feel secure and understood.
Why are these agreements such a good idea for couples these days? Life is complex, and many relationships don’t fit into a one-size-fits-all legal framework. Consider these scenarios:
The Established Homeowner. Imagine Sarah, who bought her cute house in town years before she met Mark. They’ve decided to move in together, and the house will become their family home. Under the PRA, if their relationship lasts three years or more and they separate, that home, even though Sarah owned it outright beforehand, would likely be considered relationship property and split equally. A contracting out agreement could specify that Sarah’s pre-existing equity in the house remains hers, while any increase in value or contributions made by Mark during their relationship would be considered relationship property. This provides peace of mind for both, acknowledging Sarah’s prior investment while also recognising Mark’s future contributions.
Blended Families and Inheritances. Consider David, a father of two adult children from a previous marriage, who is now in a new relationship with Helen. David has accumulated significant assets he intends to pass on to his children. Without a contracting out agreement, some of these assets could be subject to division under the PRA if his relationship with Helen ends. A contracting out agreement can clearly outline which assets David wishes to preserve for his children, ensuring his wishes are respected and providing clarity for Helen too. Similarly, if Helen were to receive a substantial inheritance during their relationship, an agreement could protect that inheritance as her separate property.
These agreements aren’t just for protecting existing assets. They can also be used when couples contribute unequally to a joint purchase, such as a first home, or when one partner has significantly higher earning power and wants to protect their separate financial future.
It’s crucial that these agreements are properly drafted and executed. Both parties must receive independent legal advice from their own lawyers. This ensures that everyone fully understands the implications of the agreement and that it is legally binding.
Ultimately, a contracting out agreement is a tool for communication and clarity within a relationship. It’s about empowering couples to make informed decisions about their financial future, ensuring that their unique circumstances are acknowledged and respected, rather than relying on a default legal framework that might not be the best fit for them.
How can we help?
WRMK Lawyers has a highly experienced, specialist relationship property team who is happy to discuss whether a contracting out agreement is right for you.
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