Protecting your financial future starts with a contracting out agreement to ensure your personal assets remain secure. Most people enter a relationship with the best intentions, but legal complications often arise when property becomes shared.
NZ law typically enforces an equal split of assets if a couple separates after living together for three years. This default rule can lead to significant stress if you contributed a larger house deposit or brought an inheritance into the partnership.
A formal agreement provides a clear roadmap for your finances. It allows you to define exactly which items stay yours and which belong to the relationship. By setting these boundaries now, you remove the guesswork and potential conflict that often follows a breakup. This proactive step saves you time and money on future legal disputes.
Read on to discover how these agreements work and why independent legal advice is a non-negotiable part of the process.
What Is A Contracting Out Agreement?
A Contracting Out Agreement, commonly known as a ‘prenup’, is a legal document between parties that sets out who owns what and how assets should be divided in the event of separation or death.
It allows you to contract out of the Property (Relationships) Act 1976, which usually dictates a 50/50 split of relationship property.
The reason Contracting Out Agreements are a good idea is that, if you separate without one, equal-sharing rules will apply. It also:
Protects Unequal Contributions: This document is essential when couples purchase a home, and one partner provides a significantly larger deposit.
Secures Your Initial Investment: A Contracting Out Agreement clearly outlines specific initial deposits to ensure you receive that exact amount back if the relationship ends.
Defines Property Boundaries: You can establish exactly what constitutes separate property versus shared assets before a dispute occurs.
Generally, things like family heirlooms will remain your property. However, if you transfer the likes of an inheritance into a joint bank account, there is a risk that this will be required to be shared equally in the event of separation.
To formalise a contracting out agreement, both parties will need to take independent legal advice from a solicitor who will explain the agreement and sign that they have explained the details to you.
Get in touch to discuss whether a contracting out agreement might be right for you.
When Should I Make A Contracting Out Agreement?
You have the flexibility to enter into this legal arrangement at any stage of your relationship. Many couples choose to sign one before they begin living together, while others wait until they are already in a de facto relationship or married. It is a common misconception that these documents must be signed before a wedding. In reality, you can protect your assets even after many years of partnership.
- Pre-relationship: Established before you move in together or marry.
- During the relationship: Signed at any point to clarify ownership of new assets like an inheritance or a business.
- Property purchase milestones: Often triggered when one partner contributes a larger deposit for a home.
- Marriage or Civil Union: Acting as a modern version of a prenuptial agreement.
Engaging in this process early is often the most effective way to ensure both parties understand their financial positions clearly. If you are currently looking at buying a home together, this is the perfect time to define your individual contributions. You can explore our property law services to see how we assist with purchasing and protecting your real estate investments.
How to Ensure a Contracting Out Agreement is Legally Binding?
Strict legal criteria exist to ensure these agreements remain enforceable under New Zealand law. Each person must receive independent legal advice from a different law firm to prevent any conflict of interest.
Your respective lawyers must witness your signatures and certify that they have explained the full implications of the document to you.
- Written form: The agreement must be a formal written document.
- Independent advice: Both partners must use separate lawyers from different firms.
- Signed and witnessed: Signatures must be witnessed by the advising lawyers.
- Certification: Each lawyer must provide a signed certificate confirming that they explained the effects of the agreement.
- Fairness: The terms must not be "seriously unjust" at the time of separation.
This high level of scrutiny provides security and fairness for everyone involved. Proper planning often goes hand in hand with organising your other legal affairs.
We recommend reviewing our wills and asset planning options to ensure your entire estate is fully protected alongside your relationship property.
Frequently Asked Questions
Do contracting out agreements protect me in the event of separation?
Yes, these agreements provide significant protection by clearly defining which assets are separate property and which are relationship property. By establishing these rules early, you avoid the uncertainty and potential legal costs of a dispute if the relationship ends.
What can and cannot be covered in a contracting out agreement?
You can cover a wide range of assets, including family homes, inheritances, businesses, and even future earnings or debt. However, the agreement cannot be seriously unjust. If the terms are deemed too one-sided or unfair at the time of separation, a court may set the agreement aside.
How much does it cost to prepare a contracting out agreement?
The cost and timeframe vary depending on the complexity of your financial situation and how quickly both parties reach an agreement. While we offer fixed fees for many services, contracting out agreements require independent legal advice for both partners, which means two separate law firms will be involved in the final certification.
Do contracting out agreements need to be notarised?
In New Zealand, these agreements do not need to be notarised, but they must be signed and certified by a lawyer from two different firms. The lawyer’s certification serves as the official validation required by the Property (Relationships) Act to ensure the document is enforceable.
Can I create a contracting out agreement without a lawyer?
No, a contracting out agreement is not legally binding in New Zealand unless each party has received independent legal advice. For the agreement to be valid, a lawyer for each partner must witness the signatures and certify that they have explained the document's effects and implications.
