The Property (Relationships) Act 1976 (“the Act”) provides how relationship property is divided when married, civil union or de-facto couples separate.
The starting point is that each partner is entitled to an equal share in the family home, the family chattels, and any other relationship property. There are exceptions to equal division. Partners can contract out of the Act by entering into a “Contracting Out” Agreement under section 21 of the Act, which is a means for both parties to agree which of their property is separate property, and which is relationship property – i.e., property to be shared equally in the event of separation, and the property that remains separate.
Why Contract Out?
There are many reasons why parties choose to sign a Contracting Out Agreement, including:
- one or both parties enter the relationship with substantial assets they wish to protect;
- one or both parties have previously been married and wish to protect assets from the previous relationship for the children of that relationship;
- the financial affairs of one party is bound up with the affairs of third parties through trusts, partnerships or companies;
- to protect an inheritance.
Section 21F sets out four criteria that must be met for the agreement to be legally binding:
- the agreement must be in writing, and be signed by the parties;
- each party to the agreement must have obtained independent legal advice;
- the signature of each party must be witnessed by a lawyer;
- the lawyer who witnesses the signature must also certify that, before the party signed, the lawyer explained to that party the effect and implications of the agreement.
Independent Legal Advice
Independent Legal Advice must be truly independent and the lawyers for each party must be from different firms. The lawyer must explain the terms of the agreement to the client, and the client must be advised of their entitlements under the Act as they relate to their entitlements under the Agreement. A client must receive an “informed and professional opinion as to the wisdom of entering into the Agreement”1
The lawyer’s certification is critical. Lawyers must ensure the agreement is in keeping with the principles of the Act, and broadly tracks how the Court might assess the “fairness” of the Agreement. It is not the lawyer’s job to tell their client what to do, however, the lawyer must ensure the agreement is not “manifestly unjust”, leaving the agreement vulnerable to invalidation by the Court. There may also be issues of client vulnerability or coercion. The client must understand both the content of the Agreement and its effect.
Lundons Law can assist by answering your questions about Relationship Property, preparing a Contracting Out Agreement, and providing independent legal advice.
Please contact us to discuss your options.
1 Coxhead v Coxhead  2 NZLR 397 at