Talking about money or property before marriage is not always easy, but being open now can prevent conflict later. A Contracting Out Agreement is also known as a prenuptial agreement (prenup) or a relationship property agreement. It is a contract between partners that sets out who owns what and how property, assets, or debts will be divided if the relationship ends or one partner passes away.
This guide from a family lawyer Sharon Chandra explains 7 essential things you should know, based on the latest guidance under the Property (Relationships) Act 1976.]
Key Takeaways
- A Contracting Out Agreement lets couples opt out of New Zealand’s default 50/50 property-sharing rules.
- It can be made before or during a relationship and must meet strict legal criteria to be valid.
- Both partners must receive independent legal advice and sign the agreement voluntarily.
- Courts can overturn unfair or pressured agreements that cause serious injustice.
- Reviewing the agreement regularly keeps it fair and enforceable as life circumstances change.
1. What Is a Contracting Out Agreement?
A Contracting Out Agreement, or prenup, is a legally binding contract that allows couples to decide how property and assets will be divided if the relationship ends or one partner dies.
It enables couples to opt out of the equal-sharing rules that automatically apply under the Property (Relationships) Act 1976. For example, you might agree that a home one partner owned before the relationship remains their separate property.
For a more detailed breakdown of this subject, see our blog about relationship property in New Zealand.
2. What Is the Purpose of a Contracting Out Agreement?
The purpose of a Contracting Out Agreement is to create certainty and prevent disputes about property ownership in the future. It provides peace of mind by clearly recording each person’s financial position and intentions if the relationship ends. Common reasons for entering into one include protecting assets acquired before the relationship, safeguarding inheritances, and clarifying contributions toward shared property.
Couples in second or “later in life” relationships often use them to protect assets for children from previous relationships. By setting expectations early, you can reduce the risk of costly and emotionally draining property disputes later.
3. What Does Contracting Out Mean in Law?
In legal terms, “contracting out” means choosing to opt out of the equal-sharing provisions of the Property (Relationships) Act 1976 and instead create your own arrangements for dividing assets and debts. The Act gives couples the right to decide how property will be divided, provided both meet the legal requirements under sections 21 to 21F.
This flexibility allows couples to design an agreement that reflects their specific circumstances, such as keeping business assets separate or adjusting shares to reflect contributions.
However, the law also protects fairness by requiring each person to receive independent legal advice before signing. For tailored guidance, it’s best to speak with a family lawyer in Auckland who specialises in relationship property law.
4. How Do You Make a Contracting Out Agreement Legally Binding?
A Contracting Out Agreement is legally binding only when it meets strict legal criteria.
To be enforceable, it must:
- Be in writing and signed by both partners.
- Be signed only after each partner has received independent legal advice from different lawyers.
- Have each lawyer witness their client’s signature.
- Include a signed certificate confirming the lawyer explained the agreement’s implications and effects.
If any of these steps are missed, the agreement will not hold up in court. These requirements ensure both partners fully understand what they are signing and that no one is pressured into agreeing.
5. Can You Cancel a Contracting Out Agreement?
Yes, a Contracting Out Agreement can be cancelled or amended, but only if both parties agree.
You must follow the same legal process used when the agreement was first created. This includes putting any changes in writing, obtaining new independent legal advice, and having both lawyers sign new certificates of advice. If one partner refuses to change or cancel the agreement, the original agreement will continue to apply. The Family Court can set aside an agreement if it finds that it would cause serious injustice, such as if one partner concealed information or pressured the other into signing.
6. What Are the Benefits of a Contracting Out Agreement?
The main benefit is clarity and protection. A well-drafted Contracting Out Agreement prevents uncertainty about who owns what, making separation smoother and less stressful. It helps preserve harmony by reducing the potential for arguments over property, savings, and debt.
Additional benefits also include:
- Protecting pre-existing assets and future inheritances.
- Safeguarding business interests or trust property.
- Reducing legal costs and emotional strain if separation occurs.
- Demonstrating transparency and fairness within the relationship.
In short, a prenup or Contracting Out Agreement allows both partners to plan responsibly while focusing on building their relationship.
7. Why Should You Review Your Agreement Over Time?
As a general rule, you should review your Contracting Out Agreement every three years or when any major life changes occur. Circumstances such as having children, buying a new home, or significant income changes can affect whether an agreement remains fair.
The law allows for flexibility, but the court may question an outdated or unbalanced document if it no longer reflects the couple’s reality. Regular reviews ensure your agreement continues to align with both partners’ intentions and remains legally sound.
Need Help With a Contracting Out Agreement?
Whether you are creating a new agreement or reviewing an old one, professional legal advice ensures your intentions are clear and the agreement is legally binding. Safeguard your future with confidence. Contact Sharon Chandra today for clear, confidential advice on your next steps.