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Future Proofing your Contracting-Out Agreement

11 February 2020

We encourage you to have your contracting-out agreement reviewed regularly and to have any new agreement “future proofed” to avoid the agreement being challenged in Court.

Contracting-out agreements are private contracts between parties who have agreed to “opt” out of the equal sharing regime under the Property (Relationships) Act 1976 (“PRA”). The effect of opting or contracting out of the PRA means parties have chosen to agree between themselves on how to classify and divide their property without the law surrounding relationship property deciding for them. While the PRA recognises the contribution partners to a marriage or a de facto relationship make as equal, a contracting-out agreement reflects the parties’ own determination of how property will be divided if the parties separate or if one party dies.

Unfortunately, such an agreement cannot foresee certain changes in the parties’ circumstances, which, if not allowed for under the agreement, can make the original agreement unfair and unreasonable with the risk it could be set aside by a court. Many couples who enter into these agreements do so at a certain time in their lives (say, if they are entering into a new relationship and are bringing with them property from a previous relationship) and want to be certain their property will remain their property throughout the relationship. Some couples have a tendency to enter into these agreements but once signed, don’t give the agreement any further attention. 

As people’s circumstances are changing or their relationships are evolving, these agreements should be treated as living agreements. Recognise that they will be affected by certain changes in the parties’ circumstances within their relationship. These changes could include having a child, getting married, or one party’s separate property is being used by both parties’ far more than what was previously envisaged and no allowance has been made for this in the agreement. It is for these reasons that such agreements should be written to capture a sense of reasonableness. Recognise that parties will make contributions to the relationship; so, allowance should be made for the creation of some equal sharing of property, which is attributable to the efforts of both parties. Unless this sense of reasonableness is front of mind during the drafting of the agreement, a change of the parties’ circumstances could affect the way the agreement has been written and make it vulnerable to being challenged in court by one of the parties as unfair and unreasonable.      

One simple way to make sure the agreement remains fair and reasonable, up to date, and in a form both parties are happy with, is to have a review of the agreement at regular intervals (like every five years) or when there is a substantial change in your life. 

So, how do you future proof your agreement? If you are considering entering into such an agreement, it should be drafted to capture a sense of reasonableness with a regard to the rights under the PRA that are being given up. Further, build in a review clause, which will apply at regular intervals or when there is a substantial change in your life (like when your first baby is born). A review won’t necessarily change what has been contracted. But, a review will allow you and your partner to consider how the agreement affects your life, and whether you wish to amend the agreement to reflect the changes in your circumstances.  

Are you entering into a new relationship or contemplating marriage? Do you have assets from a previous relationship that you might wish to protect for your children? Or, do you already have an agreement and wish to have it reviewed?

Should you wish to discuss anything from or relating to this article, please do not hesitate to contact Lisa Thorsen (DDI: (09) 969 1212, l...........@glaister.co.nz) or Paul McKendrick (DDI: (09) 914 3505, p..............@glaister.co.nz).