Relationship Property: A Plain English Guide to 'Contracting Out' Agreements in NZ

• A Contracting Out Agreement, often called a 'prenup', is a legal contract allowing a couple to decide how their property will be divided if their relationship ends, overriding the default 50/50 split.
• These agreements are a sensible tool for any couple in a marriage, civil union, or de facto relationship, not just the wealthy. They provide clarity and protect individual assets.
• The Property (Relationships) Act 1976 typically applies after three years, dictating an equal sharing of all relationship property.
• For an agreement to be legally enforceable, both partners must receive independent legal advice from separate lawyers before signing.

Talking about money and the end of a relationship can feel awkward. We get it. But in our experience, the strongest relationships are built on trust and open communication. A contracting out agreement isn't about planning to fail; it's about planning for the future with clarity and respect for each other.

It’s a proactive step to protect what’s yours, what’s theirs, and what’s ours. With in excess of 7,000 dissolutions of marriage in New Zealand in 2024, it's a practical reality that not all relationships go the distance. This kind of private agreement provides peace of mind and a clear path forward, should the unexpected happen.

A contracting out agreement is a private, written contract that you and your partner make to define how your property will be divided if you separate or if one of you passes away. It allows you to "contract out" of the standard rules set by New Zealand law, giving you control over your own affairs. You might hear it called a 'prenup' or a relationship property agreement, but they all refer to the same thing.

So, what are the standard rules? In New Zealand, the division of property is governed by the Property (Relationships) Act 1976. This law's default position is straightforward: after a couple has been together for three years in a marriage, civil union, or de facto relationship, their 'relationship property' is to be divided equally. That’s a 50/50 split.

This principle of equal sharing applies to relationships of three years or more. The Act sets out what is considered ‘relationship property’ and what is ‘separate property’.

Relationship property generally includes:

• The family home and any shared chattels (like furniture or cars), regardless of who paid for them.
• All property acquired during the relationship for your shared benefit.
• Income earned during the relationship.
• Sometimes, even the increase in value of separate property if it was influenced by contributions from the other partner.

Separate property is what you owned before the relationship, as well as inheritances, gifts, or distributions from a trust received during the relationship. However, the line can get blurry. We've seen instances where a client’s inheritance was used to pay down the mortgage on the family home. In that situation, the separate property has become relationship property and is subject to the equal sharing rule. An agreement can prevent this.

This isn't a tool reserved for the ultra-wealthy. A contracting out agreement is a sensible idea for many couples. We often recommend making a contracting out agreement if:

• You are in a new relationship: Starting with a clear understanding of your assets protects both of you.
• You have children from a previous relationship: An agreement ensures you can protect assets you wish to keep for your children.
• You are buying your first home: If one partner is contributing more to the deposit (perhaps from savings or a gift from family), an agreement can protect that initial investment. If you're buying a home with your partner, a contracting out agreement can clarify ownership and protect your investment.
• One partner has significantly more assets or debt: An agreement can ring-fence those assets or protect the other partner from pre-existing debts.
• You own a business or are in farming: It can keep your business assets separate from your relationship assets.

Your agreement is a flexible contract that should be tailored to your particular circumstances. It can clearly define which property owned by each of you will remain separate property and which will become relationship property. You can decide on a division of property that feels fair to you both, whether that's 50/50, 70/30, or something else entirely. It can cover property you have now and even future assets you might acquire.

Thinking about this document helps you take stock of your financial situation. A contracting out agreement is a key tool in your overall asset protection strategy.

For a contracting out agreement to be legally binding and enforceable, you must follow a strict process. This is not a document you can download and sign over dinner. The requirements are there to protect both parties from being pressured or signing something they don't understand.

The agreement must be in writing and signed by both partners. Crucially, each of you must receive independent legal advice before signing . This means you need your own separate lawyers. Your lawyer who witnesses the signature must certify that they have explained the full effect and implications of the agreement to you. This process ensures there was no undue influence and that both parties understood what they were agreeing to. Without this certification, the agreement is not enforceable.

Yes, but it's difficult if it was set up correctly. The Family Court has the power to set aside a contracting out agreement if it is convinced that enforcing it would cause a "serious injustice".

To decide this, the court looks at whether the agreement was fair at the time it was made and whether it has become unfair or unreasonable in light of any changes in circumstances since. This is why a "set it and forget it" approach is risky. We've seen agreements become outdated due to the birth of children, a significant increase in value of an asset, or one partner giving up their career to support the family.

The legal landscape is also shifting. The Law Commission is currently reviewing the Act and considering major changes, including to the rule that the family home is always relationship property. This potential change makes having your own private agreement even more important. Circumstances change, and so should your agreement. Already have a contracting out agreement? It might be time for a review.

_Disclaimer: The information contained in this article is for general informational purposes only and does not constitute legal advice. The law is complex and changes over time. You should consult with a qualified legal professional for advice tailored to your specific situation.