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Considering a Prenup in NZ - Relationship Property (Contracting Out) Agreement

Considering a “Prenup” in NZ – Relationship Property (Contracting Out) Agreement

For most engaged couples, the idea of a prenup is less champagne and roses and more like a cold shower. But while it’s not the most romantic thing to discuss before the big day, a Prenup or “Prenuptial Agreement” (most often called a Contracting Out Agreement or CoA in New Zealand) can be a seriously essential wedding planning move.

With many NZ couples getting married later in life and having more time to accumulate wealth and assets, it’s worth thinking about what will happen to those things if the relationship ends, or even if someone dies. Though neither is a pleasant thought – especially when planning your wedding, it’s worth taking the time to consider the benefits of a prenup.

Why is it called a Contracting Out Agreement (CoA)?

In NZ it’s called a “Contracting Out Agreement” because it refers to an alternative contract to what would otherwise be governed by the Property (Relationships) Act 1976. Generally speaking, the Act states that all relationship property including the family home (regardless of how or when it was purchased) will be open to a claim for equal sharing between the parties in the relationship. 

In New Zealand, the law assumes that partners contribute equally to their relationships in various ways, and thus have mechanisms in place to divide assets fairly in the event of separation or death. However, couples have the option to make their own agreement (CoA) to determine what happens to their assets and liabilities if their relationship ends. Although it may not be the most romantic thing to discuss, a CoA allows couples to record which assets and liabilities are considered separate or relationship property according to their own terms.

Why and when should you discuss a Prenup?

Approaching the topic of a prenup with your partner can be difficult, but there are many times you may have to have difficult conversations with your partner. Firstly, it’s important to explain your reasons for wanting to discuss it.

Prenups can be useful for any couple, regardless of their respective financial situations. They allow you and your partner to have a transparent conversation about your financial expectations and how you would like your assets to be distributed in case of separation or death. Rather than leaving these decisions to be made by the courts and laws that may not align with your specific circumstances or preferences, a prenup lets you take control of your future and protect your assets. It’s a way to consciously and proactively decide how you want to share your property with your partner.

Try to approach the conversation as an opportunity to plan for your future together. Discuss your shared goals and aspirations, as well as any concerns you may have about the potential end of your relationship. It’s important to emphasize that a prenup is about making conscious decisions as a couple, rather than relying on generic legislation that may not be suitable for your specific circumstances.

Lastly, remember that having an open and honest conversation about a prenup can actually strengthen your relationship. It shows that you both value transparency and communication, and are willing to work together to plan for your future. By approaching the topic with care and respect, you can help ensure that your relationship stays strong and healthy for years to come.

Ensuring your Prenup or Contracting Out Agreement is Valid and Legal

It’s important to understand that the rules of equal sharing apply to a wide range of assets, including things like shares in a jointly-operated company, personal savings, vehicles, and even your KiwiSaver. This means that the total value of assets subject to equal sharing can quickly become significant.

Even assets that you owned prior to entering into a relationship can be subject to a claim, although the specific factors that determine the entitlement and share of your partner will vary based on your unique situation. As always, seeking advice that is tailored to your specific circumstances is recommended.

If you and your partner agree on how you want to deal with your relationship property, it’s a good idea to record your agreement in a Contracting Out Agreement. This document allows you to create your own private agreement, rather than being subject to the rules laid out in the Property (Relationships) Act 1976.

However, it’s important to note that in order for a Contracting Out Agreement to be legally valid, it must be in writing and signed by both parties with each signature being witnessed by two separate lawyers or law firms. These lawyers will provide independent legal advice regarding the implications and effects of the agreement, and must certify that they have explained the agreement to their respective clients. The preparation and execution of a Contracting Out Agreement is therefore not a simple process, but it may be an important one for you. See also Awkward Conversations Every Couple Should Have.

Take advantage of the conversation to delve into other critical aspects of your future together, including career aspirations, family planning, and financial goals. Engaging in these discussions can establish a mutual understanding and trust between both partners. By addressing any possible worries and expectations, you can collaboratively work towards building a more resilient and secure relationship.

For more information, see advice given by LawCom, talk to Citizens Advice Bureau or a Relationship Property lawyer to get started.

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