Make sure your contracting out agreement covers the “What Ifs?”…

In yet another case, a contracting out agreement has been found to lack comprehensiveness when reviewed by the High Court.

The relevant couple had entered into a contracting out agreement in 1998 and the Court held that the agreement applied to the couple’s separation in 2009. This agreement largely contracted out of the standard rules for equal division of relationship property under the Property (Relationships) Act.

However, the agreement did not specify what would happen if one of them applied their separate property to increase the value of relationship property, or to increase the value of the other partner’s separate property.

Because the agreement did not specify what would happen in this scenario, the High Court found the rules under the Act were to be applied to that scenario. This meant, for example, that separate property put into relationship property would generally convert into relationship property (and therefore be divided on separation).

The case is a timely reminder for those contemplating entering into an agreement of this nature to turn their mind to questions such as:

• How do you intend to deal with property you buy together in the future?
• What happens if one of you improves the other’s separate property (for example, if you do-up a house together but that house is agreed to be the separate property of one partner)?
• Do you want the agreement to apply should one of you die?
• Would you want the agreement to change should a certain event happen (for example, if you have children and one of you stays at home to care for them)?

It is also a reminder to those who have an agreement but who have not reviewed it for some time to ensure it comprehensively covers all scenarios and to consider whether it needs updating.