Jeremy Sutton: The Ex-Files - should I sign a contracting out agreement?

When a marriage ends the division of the couple's property will be divided according to the rules of the Property (Relationships) Act 1976. Photo / 123rf

OPINION:

Q: My partner and I have been together for almost 2 years now. I have a feeling that he is going to propose to me over the Christmas period as I accidentally saw him looking at rings online. I am excited by the thought of marrying him but I am nervous about what it means for us financially. We are in quite different places financially. I bought the home we live in before we met using an inheritance I received from my aunt. I earn more than him now but it probably will not stay that way as the job he is in typically has a significant salary once he has more experience. My parents went through a long and messy divorce so I am nervous about what could happen if our marriage ended. If we do get engaged, should I delay the wedding until he is in a better place financially?

A: The holiday season is officially here which means it is wedding and proposals season.

Getting engaged is an exciting milestone. It is understandable that you also have some hesitancy about what it means for your financial position. However, there are steps you can take to minimise the risk of a messy divorce.

What are the rules when a couple separates?

When a marriage ends in New Zealand the division of the couple's property will be divided according to the rules of the Property (Relationships) Act 1976 ("PRA"). In most cases, this requires relationship property to be divided 50/50 between the spouses. Relationship property includes the family home and family chattels, no matter whether both parties contributed to the purchase or not.

As you have almost reached three years together, the rules of the PRA will apply whether or not you get married. This means that if you were to separate, your partner could claim an interest in your home as you live there together.

Contracting out agreement

If you do not want your relationship property to be divided 50/50 if the relationship ends after three years together, you can enter into a contracting out agreement. These agreements are also referred to as pre-nuptial agreements. Such an agreement allows you to contract out of the default rules of the PRA. This means that you and your partner can reach your own agreement about how property would be divided if you separate.

These agreements allow more flexibility regarding how your property will be shared if you separate. For example, you may not be comfortable with your partner having any interest in your home if you separate after three years together. However, you may feel that it would be fair for him to have a growing interest in it once you have been together for a while.

When should we enter a contracting out agreement?

It can be awkward to talk about money and breaking up early in a relationship, but the earlier you do, the better. This ensures you and your partner are on the same page and expectations are set early. It is best to enter into a contracting out agreement before you have lived together for three years. After this time your partner will have acquired entitlements to the family home and other relationship property.

How do we enter in to a contracting out agreement?

To be valid a contracting out agreement must be a written document that is signed by each of you after you have obtained independent legal advice. This means you will each need to speak with a lawyer who will provide advice about the consequences of signing the agreement. This process can take a couple of months or possibly longer if the matter is complex.

How to reduce the costs of visiting lawyers?

You can reduce legal fees by having discussions with your partner prior to visiting a lawyer. Try to gather as much information as possible about the assets and debts you each have. Discuss the agreement that you would like to reach. If you are on the same page, this will greatly benefit you and you'll spend less time and money speaking with your lawyer.

There is also a great online service available called Agreeable. Agreeable aims to make the contracting out process easy by offering DIY agreements and a fixed-fee quote for two independent lawyers to certify the agreement. Agreeable's support team will assist you from start to finish and answer any questions along the way. The process is completed entirely online.

What else do you need to know?

Contracting out agreements are not a set-and-forget document. They will need to be revisited as your relationship changes. If you do not revisit the agreement, there is a risk that it can be set aside by a Court if enforcing it would cause serious injustice to one of the parties because of a change in circumstances. A change in circumstance could include the birth of children. To minimise this risk ensure the agreement includes a clause that states you will review the agreement in a certain number of years or after a specific event (or whichever comes first). You do not need to change the agreement at that time, simply review it and ensure that it is still fit for purpose.

Summary

Taking the next step with a partner is a milestone to look forward to. If you are concerned about protecting your financial position in the event that you separate, you should discuss a contracting out agreement with your partner. Such an agreement would allow you to reach your own agreement about how your property would be divided if your relationship ends. If you reach agreement, the process of engaging lawyers does not need to be expensive.

- Jeremy Sutton is a senior family lawyer. Specialising in divorce cases where there are significant assets, including family trust and complex business structures.

Disclosure of interest- Jeremy is a director of the Ako Legal Platform which is being sponsored by Agreeable.