Contracting Out Agreements: Protecting Your Assets in a Relationship or Marriage

Introduction

Ensuring you and your significant other are on the same page when it comes to your shared and separate assets gives you both peace of mind. This article outlines how you can make your mutual understanding official with a Contracting Out Agreement (“COA”) (sometimes referred to as a “pre-nuptial agreement”).

What is a COA?

Under the Property (Relationships) Act 1976 (“the Act”) many assets that were the separate property of one party will become relationship property after the parties have been in a relationship of three years or more (making those assets equally divisible between parties upon separation).  A COA allows parties to “opt out” of the Act and identifies property that each party will retain should they separate.

For a COA to be enforceable, both parties are required to receive independent legal advice, and the agreement must be in writing.  

What is relationship property?

“Relationship property” is defined in the Act and includes:

• The family home and contents (but not taonga or heirlooms), other land or buildings and vehicles;
• Property acquired before the start of the relationship, but with the relationship in mind. For example, buying a holiday home in one party’s name (pre-marriage) with the intent of using it for the family;
• Income, superannuation, insurance pay outs, rents, and other income earned during the relationship;
• Any assets you acquired during (or even before) the relationship and that you intended both parties to use;
• Any increase in value, income/gains derived, and/or proceeds of sale from the items above;
• Non-personal debts (your personal debts are your own responsibility).

What is separate property?

Simply put, any property not classified as relationship property is classed as “separate property”.

The general rule is that separate property remains the property of the spouse or partner who owns it and does not have to be divided when the relationship ends. Examples of this include:

• Gifts;
• Property acquired while not living together as a couple;
• Increases in separate property value, and/or income derived from separate property.

Separate property can become relationship property if it gets mixed with relationship property or used for family purposes.

Trust Property

In New Zealand, where the use of trusts is widespread, a COA cannot include the division of trust assets.  Essentially, a COA can only record the parties’ intentions towards trust assets, but the final say remains with the trustees.  If parties have significant assets in a trust, best practice is to have two separate agreements – a COA dealing with personal property owned by each party, and a Property Sharing Agreement to deal with trust assets owned by the parties.

When should I get a COA?

While you can get a COA at any stage in your relationship (even after having passed the three year threshold), they tend to crop up in the following situations:

• When a couple is purchasing property together;
• Upon inheritance;
• When one party has significantly more assets than the other;
• When one party has significantly more debt than the other;
• Partners entering into their second or subsequent relationships.

Why should you get a COA?

If you are considering getting married or entering a de facto relationship and you have significant assets, a COA is a good idea.  A COA sets out what will happen to property that was acquired both before and during your relationship should you separate.  A COA is not an ironclad guarantee, but it will help provide certainty and reassurance for both parties, and will assist should there be dispute on separation.

Conclusion

Knowing whether to get a COA can be difficult, and a preliminary assessment of a couples’ current assets is usually advised.  A well drafted COA can provide clarity and peace of mind for both parties.  The first step is to have an initial discussion with a lawyer.

Our team of lawyers can help you prepare an agreement that is tailored to you and your partner’s needs.

Andrew is a Solicitor in our Dispute Resolution Team and can be contacted on 07 958 7447.