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If you do, it needs to be done correctly
Are contracting out agreements – aka pre-nuptial agreements – a clever idea? Should I get one? Where do I start?
There are so many questions around pre-nups, but one thing is for sure, if you do need one, it is essential to do it accurately and in an appropriate way.
In New Zealand there are strict legal requirements when it comes to entering into a contracting out agreement.
These days a contracting out agreement should be considered in advance of:
- Commencing living together (ideally within the first 12 months);
- Getting married or having a child together;
- Purchasing a property or home (either together or separately);
- Acquiring assets that you would consider to be ‘yours’; or
- Ring fencing assets you already own.
Having a discretionary family trust (of which you are potentially trustee or beneficiary) is not enough especially if you marry. It is recommended that you take advice from a relationship property expert if you are hoping to rely on a trust as a quasi-contracting out agreement.
With many people marrying later these days (and for those on second or third marriages), they are most likely to already have built up assets/equity before meeting their current partner.
In these cases, the only way to avoid an equal division is to contract out of the equal sharing regime the Property (Relationships) Act 1976 imposes and enter into a contracting out agreement. A couple deciding to contract out of the Act will need to follow specific procedural rules (including each person requiring independent legal advice) for the agreement to be valid.
As the legislation works on an “opt out” basis, if you do nothing – that is, make no agreement – the equal sharing rules will apply after you have lived together for three years. If you wish to avoid some, or all, of those rules, then you must actively enter into your own agreement.
Importantly, it does not matter if you have passed the three-year threshold. You can enter into an agreement that ‘ring fences’ assets as your own at any time during your relationship or marriage. This protection of assets should also be considered regarding inheritances or trust interests.
For more information and guidance on the best approach when negotiating contracting out agreements (prenups) contact Amanda Donovan on 09 306 0620 or @email.