With an increasing number of Kiwi couples divorcing later in life, contracting out agreements may be your saving grace to avoid your partner taking half of what you view to be yours on separation or death.
If you are:
- Entering a relationship with more assets than your partner;
- Wanting to protect the assets you acquired during a previous relationship for yourself or for your children ; or
- Wanting to record your unequal contributions in a property purchase;
you will need a contracting out agreement.
What Are Contracting Out Agreements?
Under the Property (Relationships) Act 1976 (the Act) section 21 allows couples to “contract out” of what the law says to suit their specific needs. This flexibility is especially valuable to couples who do not wish for their property to be divided equally between them, should they separate or die.
The Act applies to couples who are in a qualifying relationship, that being couples who:
- are married or in a civil union;
- have been in a de facto relationship for at least three years; or
- have a child together.
The definition “de facto relationship” is when a couple live together for three or more years. However, couples do not necessarily have to be living in the same home for there to be a de facto relationship. There can often be a grey area when parties are determining what date they began living together, so we advise our clients to take a conservative approach and consider entering into a contracting out agreement earlier than the three-year mark. This should leave little room for a future dispute as to when the de facto relationship began.
Relationship Property
From the moment you are in a qualifying relationship, but for a contracting out agreement, the following property would be considered relationship property and therefore be divided equally on separation or death:
- The family home and chattels;
- The couple’s incomes earnt during the relationship (and therefore your personal bank accounts);
- KiwiSaver or other superannuation schemes;
- Life insurance polices;
- Cars; and
- All assets acquired during the relationship;
- All assets purchased together.
You may think your property is protected within a trust, however the recent case of Sutton v Bell [2023] NZSC 65 highlighted that contracting out agreements are the safest way to protect your property as yours. In the case of Sutton v Bell, Ms Bell was successful in claiming a half share in the family home, regardless of the fact that Mr Sutton had transferred the home into a trust just prior to the couple entering into a de facto relationship. The Supreme Court held that the transfer of the family home into a trust, in anticipation of the couple entering into a de facto relationship, was enough for Ms Bell to claim an interest in the home.
The Process
There are generally three types of contracting out agreements we assist in putting together.
These include agreements where:
1. Couples keep all of their assets separate throughout the duration of the relationship (these types of agreements are usually for second in life relationships where parties wish to provide for their children from a precious relationship);
2. Couples protect their pre-relationship assets as their separate property but share all property and income they acquire during the relationship; or
3. Couples protect all of their assets as their separate property now but provide for certain assets to be shared at some point in the future (for example from when the couple marries or has a child together).
Once the terms of the agreement have been finalised, the agreement must:
- be in writing;
- be signed by both parties;
- be advised on (both parties must instruct their own lawyer to obtain independent legal advice before signing the agreement);
- be witnessed by each parties’ lawyer; and
- be certified by each parties’ lawyer that they explained the meaning, effect and implications of entering into the agreement (as it is a departure from the law).
At Simpson Western we draft bespoke contracting out agreements to tailor clients’ needs and to avoid any misunderstandings or disputes in the future. We pride ourselves in negotiating terms that are fair and reasonable, in our clients’ best interests and most importantly will stand the test of time.
Please come and see us if you think you need a contracting out agreement.
Written by Simpson Westerns Senior Solicitor Gabby Stone.
