Do I need a Contracting Out Agreement?

Frequently asked questions about protecting your assets

Sarah Moon

May 2024

Do I need a contracting out agreement with my partner?

New Zealand’s relationship property legislation was first drafted in the 1970s. While some tweaks have been made since, the legal industry has been asking for significant updates for decades. This is because it is designed for people who enter first relationships with little assets or debt and build all their wealth together through incomes.

The decision to get a contracting out agreement is a personal one, and ultimately the answer to this question will depend on the circumstances of your relationship. However, generally, we encourage people to discuss their unique situation with a lawyer, so you understand what will happen if you do not have one.

Often people enter contracting out agreements where:

• One person is moving into a property that the other owns;
• One person has significantly more assets or debt (including student loans) than the other;
• There are children from previous relationships, giving rise to inheritance concerns;
• A property is being purchased together, but one person is making a higher contribution to the deposit;
• One person has gone through a difficult breakup before, and wants to protect themselves from repeating that experience;
• One person has received a large gift or inheritance, and the couple wants to enjoy that money within their relationship (i.e. by paying down a mortgage or upgrading the home); or
• There are complicated structures like companies, trusts or family debt arrangements and you want to make sure everyone will be treated fairly.

While this topic does not seem particularly romantic, having a binding agreement on how your assets will be shared and protected can strengthen relationships. Through the process you will be encouraged to discuss and reach agreement on money and your future goals and decide for yourselves what a fair division of your assets would look like.

What is a contracting out agreement?

Technically, a contracting out agreement is an agreement under section 21 of the Property (Relationships) Act 1976 (the PRA).  They are commonly called “pre-nups” or “pre-nuptial agreements” but there is no requirement for people to be married or contemplate marriage to have an agreement.

The PRA is the legislation which sets out how property is divided upon separation or death. By signing a contracting out agreement, you and your partner are agreeing that the PRA (or parts of it) will not apply if you separate – you will have your own “rules”.

When should I be thinking of a contracting out agreement?

Because the PRA applies after you have been in a committed relationship for three years (or earlier if there are children in the home, or significant contributions have been made), most lawyers advise people to have a contracting out agreements in place before you reach the first of the following milestones:

• your third anniversary;
• moving in together; or
• making significant contributions to one another’s property.

You should also be thinking about a contracting out agreement if you have received a large inheritance or gift and want to use this within your relationship and be able to claim it back if you do separate.

As these agreements do sometimes take a few months to prepare, it is better to contact lawyers sooner rather than later once you have started these discussions with your partner.

How do I get a contracting out agreement?

First, we recommend talking to your partner about your desire to get one. While it is not always an easy conversation, it is best to be on the same page from the beginning – no one can be forced to sign an agreement.

The next step would be to talk with a lawyer. Contracting out agreements are not “one size fits all”, so your lawyer will help you create an agreement that suits the circumstances of your relationship and will likely give you many things to think about.

Your lawyer will likely recommend that you discuss their advice with your partner and make some decisions together. They will then prepare an agreement, which your partner need to take their own independent advice on.   Your lawyer can likely recommend local lawyers who specialise in this area of law for your partner if they do not already have a lawyer of their own.

We are on a low budget – can we do a contracting out agreement without lawyers?

No. For any agreement between the two of you to be binding or enforceable, independent lawyers (one for each of you) need to certify that they have given you advice on the effects and implications of the agreement.

The cost of contracting out agreements varies substantially depending on the complexity of the property interests involved, and the time it takes to draft, advise on and negotiate the terms.

While sometimes couples are reluctant to spend much money on a bit of paper, our view is that it is a worthwhile investment.  It is the best protection against claims against your property and is generally more cost-effective if you do end up separating.   

Will my trust be enough to protect me?

Maybe. We recommend speaking to a relationship property lawyer about your trust, as there have been many successful claims against trusts over the last decade. Trusts do not offer the same protections as what they once did. It is usually better to enter into a comprehensive contracting out agreement.

Once I have a contracting out agreement, will I be protected?

Yes, if your contracting out agreement was fair and reasonable both whenyou signed and when you break up. We recommend reviewing and updating your agreement regularly as your lives together change.

If circumstances have changed significantly since your agreement was prepared (whether through having children, putting one person’s career ahead of the other, or simply a decade or two has gone by), your agreement might be open to challenge if it has become unfair over time.

What information should I bring to my first meeting with a lawyer?

To make your first meeting with your lawyer more efficient, you should bring:

• a brief history of your relationship (key dates, names and dates of birth of children etc);
• information about what each of you owns/owes; and
• your ideas about what you would like to achieve in your contracting out agreement.

If you would like more in-depth advice or further information about the content of this article, please get in touch with the team at Pitt & Moore on 03 5488349.

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.