The general rule that applies to property division between couples is that once you have been in a qualifying relationship (de facto, marriage or civil union) for three years or more, in the event of separation all relationship property is divided equally.
Relationship property can include (amongst other things) the home you live in (regardless of whether it is owned by the couple jointly or in one partner’s name), household chattels, vehicles, KiwiSaver/superannuation, bank accounts, income earned during a relationship, business interests, and shares/investments.
Some couples are happy for the general rules to apply to the division of their property, in which case nothing further needs to be done. However, you can ‘contract out’ of the Act and reach your own private arrangements in this respect – by signing a Contracting Out (or ‘Pre-Nuptial’) Agreement.
A Contracting Out Agreement can be signed at any stage of a relationship, although it is generally advisable to do so before the three year mark is reached. These Agreements can be useful in many situations, and some common examples include:
- When one party brings substantial assets into a relationship that they wish to keep separate;
- Where couples are contributing to a property purchase unequally;
- When one party receives an inheritance that they wish to protect as separate property;
- When one partner wishes to protect themselves from the other’s debts.
An Agreement of this nature can record what property the couple agree is to be joint and what they wish to keep separate. It can also set out how property will be divided in the event that they separate.
In order for an Agreement to be binding, the following formal requirements must be complied with:
- The Agreement must be in writing and signed by both parties;
- Each party must have independent legal advice before signing the Agreement;
- Each party’s signature must be witnessed by a lawyer; and
- The lawyer who witnesses the signature of a party must certify that they have advised as to the effects and implications of the Agreement.
This means that any informal agreements people make are of no legal effect (although you can, in very limited circumstances, apply for them to be upheld). What people view as “fair” during the course of a relationship can change drastically in the context of a separation, so it is important to formalise any agreements made in order to protect your position and assets.
However, Contracting Out Agreements are not watertight and there is always the possibility that they could be later challenged in Court. To reduce the chances of this, it is important to get comprehensive legal advice and to take your time when preparing an Agreement. The Court has the power to set aside an Agreement if giving effect to it would cause “serious injustice”. Whilst this is a high threshold, it is more likely to be established if an Agreement is extremely one-sided and seeks for everything to remain separate, or if full disclosure of each party’s interests in property is not given when the Agreement is signed. An Agreement should be reviewed both regularly and when there are any significant changes in circumstance (financial or otherwise). See Family Court Sets Aside Contracting Out Agreement and 10-Point Guide to Contracting Out Agreements (‘Pre-Nups’) for further information.
This can be a rather complex area of the law, but seeking early expert legal assistance can help you enter into an Agreement that meets your objectives and provides certainty for the future.
If you would like further information or advice, please contact our Wellington based family lawyers Debbie Dunbar, email firstname.lastname@example.org, phone (04) 495 9940 or Maretta Twentyman, email email@example.com, phone (04) 495 8918.
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