Contracting out agreements, commonly referred to as “prenups,” allow couples to agree in advance on how property will be divided if their relationship ends.

Generally, the default law under the Property (Relationships) Act 1976 presumes equal sharing of relationship property for a qualifying relationship including a marriage, a civil union, or a de facto relationship that is greater than three years. If the relationship is less than three years, it may be treated as a qualifying relationship when there is a child born or adopted of the relationship.

Contracting out agreements are an exception to such default equal sharing rules. However, the law also provides certain circumstances under which a contracting out agreement can be declared invalid or set aside. To protect your assets during a relationship, it is important to understand when a contracting out agreement can be enforceable or set aside.

To be enforceable, the agreement must strictly comply with the following formalities, including:

• It must be in writing and signed by both parties;
• Each party must receive independent legal advice before signing;
• Each party’s signature must be witnessed by a lawyer; and
• The witnessing lawyer must certify that they have explained the effect and implications of the agreement to their client.

If these conditions are not met, the agreement is void for non-compliance. Despite this, the Court can decide to give effect to the agreement wholly or partly in certain circumstances, only if the non-complying agreement has not materially prejudiced either party.

If:

• The agreement was signed when neither party received independent legal advice;
• The signatures were not witnessed by lawyers; or
• A party signed without fully understanding the implications;

the Court might find the deficiencies materially prejudiced the disadvantaged party. The agreement is therefore unlikely to be enforceable.

When all statutory requirements are met, a contracting out agreement may still be set aside if it would cause serious injustice. To decide whether serious injustice exists, the court must consider:

• The provisions of the agreement;
• The time that has elapsed since the agreement was made;
• Whether the agreement was unfair or unreasonable at the time it was made;
• Whether it has become unfair or unreasonable considering changed circumstances;
• The parties’ desire for certainty as to property; and
• Any other matters the court considers relevant.

For example, early in a relationship a contracting out agreement was made that excluded one party from any future interest in the family home. There was no review clause in the agreement.  The parties lived together and raised children for more than ten years. One party also made substantial non-financial contributions as a caregiver and homemaker. Given the circumstances, this agreement may later be considered seriously unjust and could be set aside by the Court.

Other examples where a contracting out agreement may be set aside are as follows:

• Duress or undue influence: a party felt coerced, or did not have a totally independent choice when signing;
• Unconscionable conduct: there was a significant imbalance of bargaining power when negotiating the terms of the agreement;
• Lack of understanding: where a party did not comprehend the effect of the agreement due to absent or inadequate legal advice; or
• Lack of consideration of future events: agreements that fail to anticipate significant changes, such as children, career sacrifices, or financial dependence, may later be seen as unreasonable.

Key Considerations

To reduce the risk of a contracting out agreement being set aside:

• Ensure legal advice is obtained: Each party must receive advice from their own lawyer who explains the agreement’s effect;
• Avoid pressure: Agreements should be signed in calm, informed, circumstances, not under threat of eviction, urgency, or emotional distress; 
• Review when circumstances change or are anticipated: Include a clause requiring the agreement to be reviewed if major life events occur (e.g. having children, significant property purchases); and
• Be fair and transparent: Agreements that are one-sided or harsh are more likely to be challenged.

Contracting out agreements are effective tools for relationship property planning which should be properly executed and fundamentally fair.

The Court may set aside agreements that do not comply with legal requirements or that lead to serious injustice. The focus is on ensuring informed consent, equal bargaining power, and consideration of both parties’ contributions and future interests.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

 

Please note that Rainey Collins is not contracted to provide Legal Aid, other than in the Treaty of Waitangi area.  We therefore are unable to take on any Civil or Family Legal Aid work. If you require Legal Aid in those areas, you can search the list of Legal Aid lawyers on the Ministry of Justice website.