Contracting Out (Pre-nup) Agreements

Starting a new relationship positively while still protecting your own assets

There is often a negative connotation surrounding the idea of signing what is commonly known as a “pre-nup”. However this need not be the case. Prior to the commencement of a new relationship, parties may have obtained significant assets or monetary funds which they would like to be recognised as their own. This does not mean preparing for a divorce and instead can be an exercise of trust.

Contracting Out Agreements do not leave one party with nothing and are instead a tool to make things fair. Entering into a Contracting Out Agreement is a way of recognising a new relationship with the intent of making that relationship work.

Motivation for signing a Contracting Out Agreement need not be to prevent one party from getting a “slice of the pie”. It may be simply that the new relationship has created a merged family, and parties have obligations to their own children in the event of death.

Some people may use trusts for the same purposes as a Contracting Out Agreement. These may be considered by a court however recent cases have revealed that the security of a trust is limited.

What needs to be considered in a sound Contracting Out Agreement?

For a Contracting Out Agreement to be enforceable, it needs to be fair. For such an agreement to be seen to be fair it must be in line with the principles in the Property (Relationships) Act.

The asset which is generally the most important is the family home. It is therefore always desirable to set out a fair division of the family home in the event of a party’s death, or in the event of separation. For example, the party who owned the home originally may wish to preserve the current value of that home as separate property, but share equally in any increase in the property’s value. Alternatively percentage sharing may be preferred.

Parties have to bear in mind the obligations they have to each other under the Family Protection Act. These obligations can be dealt with in the Contracting Out agreement. For example, sometimes a life interest to the surviving spouse in the event of death is of more value than a share in the property. Each case needs to be considered on its facts.

Is a relationship affected?

We are frequently asked whether a particular relationship could lead to a claim under the Property (Relationships) Act. A relationship that is not more than a genuine friendship would not be subject to property relationship issues. However once two people are seen as a couple, there is financial sharing, or there is intimacy in the relationship similar to in a marriage, the Courts can hold it as a de facto relationship.

After three years (generally) of such a relationship the principles of equal sharing under the Act apply. The three year rule does not apply if there is a child of the de facto relationship or an applicant has made a substantial contribution to the de facto relationship. In either case

the relationship will be subject to relationship property issues even if parties have not been together for three years.

Each case is of course dependent on its own facts but having a knowledge of the cases enables us to advise the clients as to whether or not they need to be concerned.

Talk to us

Contact our Relationship Property Team today to discuss how we can assist you.

Disclaimer: The information contained in this publication is of a general nature and is not intended as legal advice. It is important that you seek legal advice that is specific to your circumstances.

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