What is a Contracting Out Agreement ?
A contracting out agreement, also known as a prenuptial or premarital agreement, is a legal document that is signed by two people who are about to get married or enter into a de facto relationship, or who are already in a relationship and want to clarify their property interests. The agreement sets out how the couple's property, assets, and debts will be divided in the event of separation or divorce. It is one of the tools we use at Walker Murdoch Law for asset protection and estate planning.
A contracting out agreement can be used to exclude certain property or assets from being divided equally in the event of separation or divorce. For example, one party may want to protect a pre-relationship owned home or shares in a business they own. The agreement can also set out how any joint property or assets will be divided.
In New Zealand, contracting out agreements are governed by section 21 of the Property (Relationships) Act 1976. To be legally binding, the agreement must be in writing and signed by both parties, and both parties must have received independent legal advice before signing. The agreement must also be signed freely and not under duress. Case law has found agreements presented to one party in the immediate lead up to a wedding not to be binding for this reason.
Some key points to consider when entering into a contracting out agreement include:
Timing: It is important to enter into a contracting out agreement well in advance of a wedding or the start of the de facto relationship, to ensure that both parties have enough time to receive independent legal advice and to negotiate the terms of the agreement. Agreements can be entered in to during a relationship but are less common.
Legal Advice: Both parties must receive independent legal advice before signing the agreement. This is to ensure that both parties fully understand the implications of the agreement and are entering into it voluntarily.
Contents: There are many considerations when deciding what an agreement should include and what it provides for. While an agreement does not need to be objectively fair, if the agreement is found to be grossly unfair or unconscionable at the time of separation or divorce, it may be set aside by a court. You will need to discuss with a lawyer what is the best strategy for you.
Overall, a contracting out agreement can be a useful tool for couples who want to protect their assets and property in the event of separation or divorce, or simply provide certainty as to outcome at will be a stressful time. If you are considering a contracting out agreement, it is important to get in touch with our family law team and discuss what might be appropriate in your specific circumstances.