Once largely the domain of the well-heeled, personalised agreements about what will happen to assets in a relationship should a couple separate, or one partner die, are becomingly increasingly mainstream.

However, many every day Kiwis still assume pre-nups – or “contracting out agreements” as they’re legally referred to – are only relevant when princely sums are at play, and, therefore, not worth exploring for themselves. Many times over, I have seen that misconception end up as a very expensive, stressful mess, one that could have so easily been avoided.

The reality is anyone new to a serious relationship needs to ensure they are fully informed on what the ramifications are around relationship property – not just in the present day, but into the future as their partnership evolves.

There are various milestones that see new entitlements kick in – for example, most people know that, generally, the 50-50 equal split applies to assets after three years. What many people don’t realise, though, is that law comes with quite a few “buts”.

Laypeople often wrongly assume the laws that affect them are pretty cut-and-dried, but they can often be complicated and confusing. Up against a tidal wave of love hormones, taking a hypothetical scalpel to your relationship and your respective assets will probably feel really odd and extremely counter-intuitive.

What I can say is: the sooner you have the conversation, the better – emotionally and legally. The longer you leave it, the more one’s life and assets have already become intertwined – and the more likely a partner might question why all of a sudden a contracting out agreement is on the table, even though you’re simply trying to be practical and responsible.

So, let’s go back a step, and look at the foundations of relationship property law in New Zealand. The Property (Relationships) Act 1976 is a code, a set of rules setting out what happens in the event of separation or death. However, while the Act encases the default rules, couples can, under section 21, agree to “contract out” of the legislation – in other words, formally agree to rules personalised to their particular situation.

Whether you go ahead with a contracting out agreement or not, the crucial step that you should never sidestep is getting independent legal advice to find out if an agreement is required or not – before you even get to the content of it. It should be an informed choice either way. Remember, too, society, lifestyles and relationships have all changed markedly since the Act’s inception in the mid-70s, an era when, typically, couples came together with negligible assets and went on to accumulate the majority of their wealth and property within the relationship.

So, it’s not, perhaps surprising that increasing numbers are eschewing the Act, in favour of a contracting out agreement that more accurately reflects their own personal circumstances, commonly:

  • Second marriages, civil unions or de facto relationships
  • Relationships to which one, or both, partners bring substantial wealth – or the likelihood of substantial gifts or inheritances from a third party
  • Relationships where one, or both, of the parties have finances inextricably linked with thirds parties in the likes of trusts, partnerships and/or companies

Second marriages and relationships – including blended families – are more commonplace today, which can often add another layer of complexity and require careful forethought both around assets and commitments to any children involved. Often what people don’t grasp, until it’s too late, is that, unlike some matrimonial property regimes overseas, New Zealand’s Property (Relationships) Act 1976, gives limited protection to pre-relationship assets which, for example, are subsequently used to purchase the family home, or to assets which may subsequently have become intermingled. In time, what’s mine – with some exceptions – may become yours, and vice versa.

It is very important that when people contemplate entering into an agreement they are very clear which sections of the Act they are agreeing to “contract out” of. For example, section 15 looks at economic disparity. What if one party steps back from their career to look after the children and, thereby, allows their partner to throw themselves into their professional life? Should they not be compensated?

While raising the spectre of a contracting out agreement tends to more typically spark awkwardness in most people, there are those who see an opportunity to clarify what will happen in the event of separation, rather than it being left to lawyers to argue about – especially given the complexities and uncertainties of the current legislation. I often see agreements that attempt to contract out more than is needed and more than is fair. An ambitious businessperson, for example, might see it as a way to ringfence for themselves future high earnings and gains.

Bear in mind, though, the legal riders on a contracting out agreement include that it must be fair to both parties. The law also puts an emphasis on the interests of any children, and stipulates both parties must obtain independent legal advice before signing.

You can help avoid an unwanted legal challenge to the contract by working it through with your lawyer, who will be able to guide you on making it as robust as possible. Much like a Will, it’s vital you regularly review your contracting out agreement – we recommend at least once every five years, but certainly earlier in the event of a major life change.

Remember, too, contracting out agreements are not just for “marriages” – they are for all intimate relationships. And, the sooner into that relationship you tackle “the contracting out talk” the more informed options you will both have – and, in a healthy, mutually-respectful relationship, that can only be a good thing.

Relationship & Family Relationship property Collaborative Law