The legal terms relating to relationship property-based agreements such as Contracting Out Agreements and Relationship Property Agreements can be confusing. 

A Contracting Out Agreement is more commonly known as a prenup.

The main difference between a Relationship Property Agreement and a Contracting Out Agreement is the point in time that parties enter into the agreements. 

The beginning of a relationship is critical when thinking about relationship property as from the get-go, any property you own may be included in the relationship property pool. If property that you own prior to relationship is mixed in with relationship property, or improved using relationship property, it may lose its status as separate property. 

It’s usually easy enough to understand the time at which a couple enters into a marriage or civil union, as the date will be recorded in the marriage or civil union documents. 

A qualifying de facto relationship can be more difficult to assess. 

If a couple have been living together for less than three years in a relationship, then their property is separate under relationship property law. When a couple has been living together for three years in a relationship, their relationship will become a qualifying de facto relationship and will be subject to the rules of equal division. 

Contracting Out Agreements

The purpose of a Contracting Out Agreement is for the parties to set out what property is separate to each partner and what property is property of the relationship. This dictates how the assets and liabilities are to be split in the event of a breakup.

Contracting Out Agreements are generally entered into before a relationship becomes a “relationship” under the legal definition.

The agreement is called a “contracting out” agreement as the parties are agreeing in advance to contract out of the default legal position upon a breakup.

A Contracting Out Agreement is also a “living” document in the sense that it can be reviewed and amended by the parties throughout the life of the relationship.

Relationship Property Agreements

On the other hand, a Relationship Property Agreement is entered into after the breakdown of a relationship. 

The agreement sets out the agreed division of assets and relationship property post-breakup, and is often referred to as a “settlement agreement” or “separation agreement”

This agreement allows partners to divide their relationship property in the way that they choose, rather than dividing property in line with the default legal position. If the partners had a Contracting Out Agreement it would become relevant at this point, as it would indicate how the partners had previously agreed to divide property.

Relationship Property Agreements are designed to be full and final, and, once signed, can only be reviewed or set aside if the terms of the agreement create, or created, serious injustice to one party.

The process of creating and entering into these agreements can be very technical and confusing. There are strict requirements that must be met for them to be valid. 

It is important to seek legal advice whether you are thinking about entering a Contracting Out Agreement  before a relationship commences, or a Relationship Property Agreement when a relationship has ended.

Given the complexity, and serious potential risks of getting it wrong, it is wise to seek advice from a professional with experience in the area.

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