The Ex-Files: If a JP witnesses our agreement, is it legally binding?

To protect your estate from the Property (Relationships) Act, you'll need a Contracting Out Agreement, or prenup as it is commonly known as. Photo / 123RF

COMMENT:

Q. We have been in a relationship for about seven years. We speak to each other daily, by telephone, but see each other infrequently as we live at opposite ends of the country. It is an arrangement that suits us both and we have no plans to live together. We visit each other maybe once every two months and share holidays in NZ and overseas of no more than 2-3 weeks' duration, about every 12 months. We share the cost of outings and travel but do not operate a joint bank account.

We have discussed the situation and, in the event of death or a break-up of the friendship, are agreed that neither will have a claim on the other's estate. About three years ago we set this agreement out in writing and had our signatures witnessed by a Justice of the Peace. We each have a copy of this agreement.

To us the situation is quite clear, but we wish to know if this is sufficient to exclude us from the Matrimonial Property Act?

A. Under the Property (Relationships) Act (formerly the Matrimonial Property Act), once a couple has been married or "live together as a couple" (a de facto relationship) for three years, then generally speaking, their assets and debts become "relationship property" and are divided equally between them if they separate.

There is no one element which determines whether a partnership qualifies as "living together as a couple". Instead, all the circumstances of the relationship are considered. For example, how long the couple have been together and whether they live in the same home (some of the time or all of the time), share finances or own property together. Other factors include how the relationship is viewed by friends and family, and whether the couple spend birthdays together and exchange gifts.

While it sounds like you and your partner are not financially entwined, you do share some of the elements of a de facto relationship such as the length of time you have been a couple, your regular phone calls and overseas holidays together.

Therefore, the rules of the Property (Relationships) Act may apply to your situation.

If you don't want the Act to apply

Many couples, like yourselves, don't want to be governed by the Act and would prefer to make their own decisions about who owns what if they separate or if one of them passes away.

However, for an agreement to be legally binding, there are certain criteria that need to be met. It needs to be in writing and signed by both parties. Also, each party needs to have received independent legal advice before signing and have their signature witnessed by their lawyer. This is called a Contracting Out Agreement but is more commonly known as a prenup.

It is not sufficient to have a JP witness your signature. Your current agreement would not be legally binding if you ended up in Court one day.

To be certain of the situation, you will need to enter into a formal Contracting Out Agreement.

The downside of doing this is the cost, which would be around $5000 in total for both sets of legal fees. If you are already agreed on your detailed terms, this will reduce the amount of time required by your lawyers and keep the fees to a minimum.

Often one party is more disadvantaged than the other by the agreement. In this situation, the party that is better off sometimes offers to cover both sets of legal fees.

Conclusion

It is sensible that you have discussed your property and reached an agreement about it. However, if you want this to be legally binding, you will need to have a Contracting Out Agreement drawn up.

Do you have a family law question? Email it to js@bastionchambers.co.nz. Questions should not exceed 200 words. Please provide a phone number. Your name will not be published. Jeremy cannot answer all questions, correspond directly with readers, or give legal advice. Jeremy's advice is of a general nature, and he is not responsible for any loss that any reader may suffer from following it.

- Jeremy Sutton is a senior family lawyer, specialising in divorce cases where there are significant assets, including family trusts and complex business structures. www.jeremysutton.co.nz