Contracting Out of the Property (Relationships) Act 1976 09 Dec 2011
If you are married, or in a civil union or de facto relationship, New Zealand's Property (Relationships) Act 1976 will have an impact on what happens to your property in the event of separation or death.
The Act makes provision, however, for you and your spouse to specifically agree on what is to happen to your property by entering into a contracting out agreement.
Who can enter into an agreement?
Section 21 of the Property (Relationships) Act 1976 provides that a husband and wife, civil union partners, de facto partners, or two persons in contemplation of entering into a marriage, civil union or de facto relationship may contract out of the provisions of the Act.
Why enter into an agreement?
There are numerous reasons for electing to contract out of the Act. Usually, it is to avoid the presumption of equal sharing of property that arises when the relationship ends. However, an agreement may also assist with asset, estate or tax planning. It may be a desire by one or both parties to preserve all of the property owned or acquired by them prior to the commencement of the relationship as his or her own separate property. Where one partner has children from a previous relationship, there may be a dersire to ensure that those children are adequately provided for from their property. Alternatively, the parties may simply wish to record their decision to treat certain property differently.
What can be included in the agreement?
Section 21D of the Act sets out what can be included in an agreement. An agreement can:
- declare property to be separate or relationship property;
- define the share each party to the agreement has in any part or all of the relationship property;
- define shares on death;
- provide for the calculation of the shares; and
- prescribe the method by which the relationship property is to be divided.
Section 21 of the Act permits parties to an agreement to make any arrangements they think fit with respect to their property, including property acquired in the future by one or other or both of the parties.
“Property” is specifically defined in section 2 of the Act and includes the following:
- real property (i.e. land);
- personal property;
- any estate or interest in any real property or personal property;
- a debt; and
- any other right or interest.
How is the agreement made valid?
Section 21F of the Act records an agreement will be void unless it complies with certain requirements. Those include the following:
- The agreement must be in writing and signed by both parties.
- Each party to the agreement must have independent legal advice before signing the agreement.
- The signature of each party to the agreement must be witnessed by a lawyer.
- The lawyer who witnesses the signature of a party must certify that, before that party signed the agreement, the lawyer explained to that party the effect and implications of the agreement.
It is important to recognize that an agreement contracting out of the provisions of the Act needs to be revisited on a regular basis. It is impossible when drafting an agreement to anticipate every eventuality just as it is impossible to foresee, at the outset, the longevity of a relationship.