Do contracting out agreements (“pre-nups”) stand up in court?

31 May, 2012 | Smith and Partners

It is increasingly common for a client to report that they didn’t try to protect themselves from the equal sharing provisions of the Property (Relationships) Act 1976 because they had heard agreements are often overturned by the Court. That is not the case. It is extremely unlikely for an agreement to be set aside, provided it has been drafted with proper guidance.

In most cases, these clients never imagined a future claim from an ex-partner or spouse. In every case a quality contracting out agreement could have saved them many thousands of dollars.

The Property (Relationships) Act 1976
Section 21 of the Property (Relationships) Act 1976 allows people to make their own agreement at any stage of a relationship, rather than divide property on death or separation according to the Act. The Act can sometimes be very blunt or even unfair. If you do not take the steps to contract out of the Act then assets became part of a relationship property “pool”.

Specialists in relationship property law are able to draft and advise about strong and secure agreements which reflect parties’ actual intentions and their individual sense of fairness.

What does cause a contracting out an agreement to be overturned?

In rare cases where agreements have been successfully overturned the reasons have included:

• Unsatisfactory process, which usually includes not complying with the compulsory formalities of the Act to the extent that it is unjust;
• Serious injustice where an agreement is considered seriously unfair in itself or due to the passing of time or changed circumstances; and
• Pressure or duress to the extent that it creates serious injustice such as “sign it or the marriage is off” the day before a wedding.

Recent case law

Recent cases illustrate the Court’s definition of serious injustice and how they are increasing reluctant to overturn properly constituted agreements.

In VKFM v FJS High Court, Tauranga, 30 November 2011 the wife proposed a contracting out agreement to her entrepreneurial husband. She wanted their significant assets to be divided into pools of separate property and a specific portion protected from the business choices her husband was making. He was subsequently more successful than she had anticipated.

Although the eventual outcome at separation created advantage to the husband due to the agreement, both the Family Court and the High Court held that the wife was a “capable and astute businesswoman”. She fully understood and saw the benefit in the agreement despite being advised against signing it.

The Court was also influenced by the fact that both parties had received good and sufficient independent legal advice, they had reviewed the agreement and made small changes a short time later, and the Court’s wish for certainty when couples enter into their own arrangements outside of the Act.

How to ensure your  contracting out agreement stands up in Court

It is crucial that you engage a lawyer who specialises in relationship property.  The law is complex, and your agreement must be carefully drafted and correct procedure followed to ensure that the contracting out agreement is enforceable.  An experienced relationship property lawyer will be able to provide competent advice and drafting to ensure your assets are protected.

Do you need to protect your assets? Would you like to get started setting up a contracting out agreement?

If you would like to become a client of Smith and Partners and get help with your contracting out agreement, please contact Relationship Property team on 09 837 6883 or email partners@smithpartners.co.nz to set up an appointment to discuss your contracting out agreement.

We will require a retainer to be paid prior to your first meeting, and we cannot assist with legal aid matters.

Please note that in accordance with our obligations under the Lawyers and Conveyancers Act 2006, we cannot provide legal advice unless you have become a client of Smith and Partners and have received our Terms & Conditions of Engagement and Info for Clients.