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Why You NEED To Review Your Contracting Out Agreement
6 November, 2017 | Smith and Partners
Contracting Out Agreements, otherwise known by their widespread American connotation as “pre-nups”, are increasingly popular and are becoming a necessity for parties when entering into a relationship. But too many couples are using a set-it-and-forget-it approach. A correctly executed Contracting Out Agreement can be legally binding – but holes can start to appear if the Contracting Out Agreement is not reviewed regularly.
Why are they so popular?
A Contracting Out Agreement enables couples to contract out of the Property Relationships Act 1976 (‘the Act”) which dictates that most assets/liabilities in a relationship are to be divided 50/50 if that couple were to separate.
Unfortunately it is no longer the norm for couples to be together forever. With people having multiple partners over their life span, the idea of sharing all your assets with a few different people can be concerning (remember that house you owned outright?).
Que the Contracting Out Agreement…
A Contracting Out Agreement defines how to allocate assets/liabilities in the event of separation or death. Effectively, couples can come to any arrangement they like rather than the standard 50/50 split. (You can keep your house separate, while ensuring you don’t take on your partners GE Finance debt).
The need for a “fair” agreement
Now, you may think that’s all you need to do. However, the underlying feature of the Act is that even when contracting out of the Act, the terms of the Contracting Out Agreement which is reached must be fair in the particular circumstances of the parties. This is where we (your lawyers) step in – we can provide the independent legal advice for you, so you can be reassured about the effects and implications of what you are signing up for.
Regular reviews help ensure the agreement stays “fair”
Once you have entered into the Contracting Out Agreement, you must treat it as a live document. You need to review it regularly i.e. every few years or upon a significant change in circumstances eg. having a child, serious illness, periods of unemployment, marriage etc.
If a Contracting Out Agreement is not regularly reviewed, it becomes vulnerable to challenges. This is especially so when the Contracting Out Agreement is more in favour of one party than the other. For example: if a couple were together for twenty years and upon separation their Contracting Out Agreement stipulated one partner was to receive a car while the other was to receive the family home it could potentially be challenged if it were deemed to be unfair. However, if the Contracting Out Agreement had been continuously reviewed, and the parties were happy with this arrangement, the Contracting Out Agreement should stand.
As a relationship continues to grow and change, the agreement which governs relationship property, must adapt to those changing circumstances.