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What is a Contracting Out Agreement?
6 April, 2016 | Smith and Partners
Article updated April 2024
A Contracting Out Agreement is sometimes referred to as a prenup or prenuptial agreement. In New Zealand, The Property (Relationships) Act 1976 (“the Act”) provides 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 (that’s why we call them Contracting Out Agreements).
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 de facto relationship of three years or more, a civil union or are married (all of which are “qualifying relationships” under the Act), 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. We advise our clients to enter into a Contracting Out Agreement as early as possible, and preferably before you acquire rights under the Act / before your relationship becomes a qualifying relationship under the Act.
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 prior to the relationship).
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 owned and paid for during your relationship ,and how they are to be divided in the event of separation or death. The ownership and division of future acquired property (whether acquired just by you or your partner; or by both of you together) can also be defined.
