Can You Rely on A Contracting Out Agreement?



Thirteen years ago, Terry spent considerable time and money getting a Contracting Out agreement (pre-nuptial agreement) completed with his partner, Monique. Not only did it cost him several thousand in legal costs, it was also pretty stressful for them both as Monique didn't really want to sign it. Now, he feels it was all worth it because he and Monique have separated. He is relieved that he insisted on protecting his assets, including the home he brought into the relationship, with that agreement.


Terry came to his first appointment clutching his Contracting Out Agreement and feeling confident that while Monique may have decided to leave their marriage, she wouldn't be doing so with half his hard earned assets. His confidence was to be short-lived.


On speaking with Terry, we learned that in the years since they signed their agreement, a lot of changes had occurred for Monique and Terry. Terry had had a period where he hadn't been in work and Monique had supported him financially, paying all the expenses on the home. They had bought and sold the original home Terry owned along with a number of the other assets they had each brought into the relationship and included in the agreement. A couple of years after signing the agreement, they had married and three children quickly followed. On the birth of their first child, Monique gave up her paid employment and become a full time mother. Among other things, the agreement says that Monique has no claim to the home and no claims for economic disparity compensation. At no time, did they review the agreement. Terry told us he hadn't wanted to spend any more money on it nor face the stress of renegotiating it.


We had to tell Terry that there is a high risk his agreement will be challenged by Monique. She could argue that the agreement would cause serious injustice; that it had become unfair given the changes in their circumstances since it was made. If she is successful, the Agreement would be set aside. If that happens, their property will be divided according to the Property (relationships) Act 1976 and Monique would receive at least a half share of the property pool. Terry acknowledged that, in avoiding the cost of reviewing his agreement, he had potentially cost himself a lot more.


Regularly reviewing your Contracting Out Agreement helps to ensure it reflects any changes in your financial or personal circumstances. Like your will, your Contracting Out Agreement needs to be regularly reviewed to ensure it keeps pace with your life. While you may not think there have been any changes in your circumstances that make a review necessary, relationship property law and how it is applied by the Courts is constantly evolving. Reviewing your agreement will ensure that it reflects changes in the law and remains current.


If your agreement is not regularly reviewed and you and your partner separate (or one of you dies), all your effort and cost of putting the Agreement in place could be undone. You run the risk that the agreement becomes of no use because it no longer reflects your financial circumstances. The property covered by the Agreement simply may not exist any more. Furthermore, you run the risk that a Court may decide that changes that occurred throughout your relationship means the Agreement has become unjust and therefore shouldn’t be of effect.


We tell our clients to think of their Contracting Out Agreement as similar to the insurance policy they have for their home. You don't pay one insurance premium and expect it to protect you forever. Instead, you regularly pay to maintain your insurance and regularly check that your insurance policy meets your needs and circumstances. Statistically, there is more likelihood of experiencing a separation than your home burning down yet most people are like Terry and don't pay as much diligence to putting in place a sound Contracting Out Agreement and regularly reviewing it. Don't be like Terry.


If you would like to discuss having your existing property agreement or arrangements reviewed, email us at lawyers@familylawresults.co.nz.


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