What is a Contract Out Agreement?
A contracting out agreement allows couples to contract out of the de facto provisions of the Property (Relationships) Act 1976 ("the Act") by making any agreement they think fit in respect to the status, ownership, and division of their property (including any future property they may acquire).
For a contracting out agreement to be valid, certain requirements need to be complied with, namely:
(a)the agreement must be in writing and signed by both parties;
(b) each party to the agreement must have independent legal advice before signing;
(c) the signature of each party to the agreement must be witnessed by a lawyer; and
(d) the lawyer who witnessed must certify that before the agreement was signed, the lawyer explained to them the effects and implications of the agreement.
In the absence of a contract out agreement, property owned by the parties will be divided equally after the qualifying period (three years but in some instances shorter duration may suffice).
Relationship property has a wide definition and can include all property each party acquired during the relationship, including:
(a)the family home, even if it was acquired by one party before the relationship started;
(b) the family chattels, even if acquired by one party before the relationship;
(c) any assets purchased for shared use; and
(d) any increase in the value of Kiwisaver/superannuation during the relationship.
Unless you have a contracting out agreement, the property listed above will be divided equally in the even to separation. the fact that you purchased the family home before the relationship started is irrelevant.
Who should get a contracting out agreement?
Whilst a contracting out agreement is desirable for all couples it is highly recommended for people entering second relationships or where one party is bringing significantly more assets into the relationship. The best way to protect your assets is by declaring your property as your separate property in an agreement. This will not only protect you but also make any separation much easier as you would already have an agreement in place settling out how the property should be divided. The best time to discuss and execute a contracting out agreement is when the relationship is good, as it is easy to discuss tricky matters at that stage.
