What is a Contracting Out Agreement?
6 April, 2016 | Smith and Partners
A Contracting Out Agreement is more commonly referred to as a prenup or prenuptial agreement. In New Zealand, The Property (Relationships) Act 1976 (“the Act”) says that all relationship property should be divided in equal shares at the end of a de facto relationship, civil union or marriage, unless you contract out of the Act (hence why it’s called a Contracting Out Agreement).
Provided certain conditions are met, a Contracting Out Agreement allows couples to mutually decide how present and future assets and liabilities will be divided should the relationship end.
What happens if you don’t have Contracting Out Agreement?
If you do not have a Contracting Out Agreement and you are in a qualifying de facto relationship, are in a civil union or are married, potentially all of your assets and liabilities could be split 50/50 if you were to separate or if one of you was to die.
When can you get a Contracting Out Agreement?
People can contract out of the Act at the beginning, middle or end of the relationship. In most cases, we advise our clients to enter into a Contracting Out Agreement as early as possible.
Why should you get a Contracting Out Agreement?
The main reason you should enter into a Contracting Out Agreement is to ring fence/protect particular assets and liabilities (e.g so you do not become jointly responsible for your partner’s student loan or so you can protect a claim being made against the home which you independently saved for and purchased with your hard earned cash).
The other main reason to enter into a Contracting Out Agreement is to set expectations for both you and your partner as to how assets and/or liabilities are to be divided in the event of separation or death. The division of future acquired property (whether acquired just by you or your partner; or by both of you together) can also be defined.