While discussing financial matters before marriage or moving in together may not seem romantic, a prenuptial agreement (legally known as a contracting out agreement in New Zealand) can provide clarity, certainty, and protection for both partners. Understanding how these agreements work under New Zealand law is essential for anyone considering this important step.
What is a Prenuptial Agreement in New Zealand?
In New Zealand, what is commonly called a "prenuptial agreement" is formally known as a "contracting out agreement" or a "Section 21 agreement" (referring to Section 21 of the Property (Relationships) Act 1976).
These agreements allow couples to opt out of the default property division rules under the Property (Relationships) Act and make their own arrangements about how their property will be divided if they separate or if one partner dies.
Contracting out agreements can be made:
- Before or during a marriage or civil union
- Before or during a de facto relationship
When made before marriage, they're commonly called "prenuptial agreements" or "prenups." When made during a relationship, they're sometimes called "postnuptial agreements" or simply "relationship property agreements."
Why Consider a Prenuptial Agreement?
There are many reasons why couples might consider a prenuptial agreement:
1. Protecting Pre-Existing Assets
If you're entering a relationship with significant assets (such as a home, investments, or business interests), a prenuptial agreement can help ensure these remain your separate property.
2. Protecting Inheritance or Gifts
If you've received or expect to receive substantial inheritances or gifts, a prenuptial agreement can clarify that these should remain separate property.
3. Business Protection
Business owners may want to protect their business interests and ensure business continuity regardless of relationship changes.
4. Protecting Children from Previous Relationships
If you have children from a previous relationship, a prenuptial agreement can help ensure that certain assets are preserved for them.
5. Debt Protection
If one partner has significant debt, an agreement can clarify that the other partner won't be responsible for this debt if the relationship ends.
6. Clarity and Certainty
A prenuptial agreement provides clarity about financial matters, potentially reducing conflict if the relationship ends. It allows couples to make decisions thoughtfully rather than during the emotional stress of separation.
The Default Position: Equal Sharing Under the Property (Relationships) Act
To understand the value of a prenuptial agreement, it's important to know the default position under New Zealand law.
The Property (Relationships) Act 1976 applies to marriages, civil unions, and de facto relationships of three years or more. Under this Act:
- Relationship property is generally divided equally (50/50) when a relationship ends
- The family home and family chattels are considered relationship property regardless of when they were acquired or who paid for them
- Other property acquired during the relationship is typically relationship property
- Separate property (acquired before the relationship or by inheritance/gift) can become relationship property if it's intermingled with relationship property or used for family purposes
A prenuptial agreement allows couples to create their own rules instead of being bound by these default provisions.
What Can Be Included in a Prenuptial Agreement?
A prenuptial agreement in New Zealand can cover various aspects of property division, including:
- Specifying what property is separate and what is relationship property
- Determining how specific assets will be divided upon separation
- Protecting assets brought into the relationship
- Protecting inheritances or gifts received during the relationship
- Addressing business interests
- Making provisions for existing children
- Specifying arrangements for specific assets like family homes or heirlooms
- Including provisions about spousal maintenance (though these may be subject to court review)
It's important to note that prenuptial agreements cannot determine child custody or child support arrangements. These matters must be decided based on the circumstances at the time of separation, with the best interests of the children as the paramount consideration.
Legal Requirements for a Valid Prenuptial Agreement
For a prenuptial agreement to be legally binding in New Zealand, it must meet specific requirements:
1. Written Agreement
The agreement must be in writing and signed by both parties.
2. Independent Legal Advice
Each party must receive independent legal advice before signing the agreement. This means each person must have their own lawyer.
3. Certification by Lawyers
The agreement must include certificates signed by the lawyers confirming that they have explained the effects and implications of the agreement to their client before the client signed it.
4. Full Disclosure
While not explicitly required by the Act, full disclosure of assets and liabilities by both parties is essential. Without proper disclosure, the agreement may later be set aside by the court.
5. Fairness and Absence of Pressure
The agreement should be fair and reasonable, and both parties should enter into it freely, without undue pressure or duress.
When Can a Prenuptial Agreement Be Set Aside?
Even if an agreement meets all the formal requirements, the court can set it aside (invalidate it) in certain circumstances:
1. Serious Injustice
The court can set aside an agreement if giving effect to it would cause "serious injustice." Factors the court considers include:
- The length of time since the agreement was made
- Whether the agreement was unfair or unreasonable in light of all the circumstances at the time it was made
- Whether circumstances have changed since the agreement was made (especially if they were unforeseen)
- The impact on any children of the relationship
2. Improper Disclosure
If one party didn't fully disclose their assets and liabilities, the agreement may be set aside.
3. Undue Influence or Duress
If one party was pressured or coerced into signing the agreement, it may be invalid.
4. Failure to Meet Formal Requirements
If the agreement doesn't meet the formal requirements (written, independent legal advice, certification), it won't be legally binding.
The Process of Creating a Prenuptial Agreement
Step 1: Discuss and Agree on Terms
Before involving lawyers, discuss with your partner what you both want to include in the agreement. Be open and honest about your assets, debts, and expectations.
Step 2: Each Partner Engages Their Own Lawyer
Each partner must have their own independent lawyer. One lawyer cannot represent both parties.
Step 3: Full Disclosure of Assets and Liabilities
Both partners should provide complete information about their financial situation, including:
- Real estate
- Bank accounts and investments
- Business interests
- Retirement accounts
- Valuable personal property
- Debts and liabilities
- Expected inheritances (if known)
Step 4: Drafting the Agreement
Typically, one lawyer drafts the agreement based on the agreed terms. The draft is then reviewed by the other partner's lawyer, who may suggest changes.
Step 5: Review and Negotiation
Both partners review the draft with their respective lawyers and negotiate any changes until a final version is agreed upon.
Step 6: Signing the Agreement
Once both partners are satisfied with the agreement, they sign it in the presence of their lawyers. The lawyers then sign certificates confirming they have explained the effects and implications of the agreement.
Timing Considerations
The timing of a prenuptial agreement is important:
- Ideally, the agreement should be completed well before marriage or cohabitation begins—at least several weeks, preferably months
- Last-minute agreements (especially right before a wedding) are more vulnerable to challenge on the grounds of duress or undue influence
- The agreement should be reviewed periodically, especially after significant life events like the birth of children, substantial inheritance, or major career changes
Costs of a Prenuptial Agreement
The cost of a prenuptial agreement in New Zealand typically ranges from $2,500 to $5,000+ per person, depending on:
- The complexity of the financial situation
- The number of assets involved
- Whether the terms are straightforward or require extensive negotiation
- The experience and rates of the lawyers involved
While this may seem expensive, it's a relatively small investment compared to the potential cost of relationship property disputes, which can run into tens of thousands of dollars.
Common Misconceptions About Prenuptial Agreements
Misconception 1: Prenups Are Only for the Wealthy
While prenuptial agreements are particularly valuable for those with significant assets, they can benefit couples in various financial situations. They provide clarity and certainty for anyone who wants to protect specific assets or establish clear financial arrangements.
Misconception 2: Prenups Indicate a Lack of Trust
A prenuptial agreement is not about lack of trust but about financial planning and clarity. It can actually strengthen a relationship by encouraging open communication about finances and expectations.
Misconception 3: Prenups Are Unromantic
While discussing financial matters may not seem romantic, having clear agreements can actually reduce stress and conflict in a relationship. It allows couples to focus on their relationship rather than worrying about financial uncertainties.
Misconception 4: Once Signed, a Prenup Is Permanent and Unchangeable
Prenuptial agreements can be modified or replaced by a new agreement if both partners agree. It's actually recommended to review and update the agreement periodically as circumstances change.
Alternatives to Prenuptial Agreements
If a formal prenuptial agreement isn't suitable for your situation, there are alternatives:
1. Trusts
Placing assets in a properly structured trust before entering a relationship can help protect them from relationship property claims. However, trust arrangements are complex and require specialist legal advice.
2. Keeping Property Separate
Maintaining clear separation between relationship property and separate property can help, but this can be difficult in practice, especially for the family home.
3. Postnuptial Agreement
If you're already in a relationship, you can still enter into a contracting out agreement (sometimes called a postnuptial agreement) at any time.
Conclusion
A prenuptial agreement (contracting out agreement) is a valuable tool for couples who want clarity and certainty about their financial arrangements. While discussing these matters may not seem romantic, having clear agreements can actually strengthen a relationship by reducing potential sources of conflict.
To ensure your prenuptial agreement is legally binding and effective, it's essential to follow the proper process, including full disclosure and independent legal advice for both parties. With careful planning and professional guidance, a prenuptial agreement can provide peace of mind and protection for your financial future.
Remember that every relationship is unique, and a prenuptial agreement should be tailored to your specific circumstances and goals. Seeking advice from a lawyer experienced in relationship property matters is the best way to ensure your agreement meets your needs and will stand the test of time.