Do I need a prenup? What is a contracting out agreement? What is relationship property? These are some questions you may ask yourself when entering a serious relationship with your partner.  It is important to understand the answers to these questions before committing not only yourself but your assets to your partner.

What is the Property Relationships Act? 

The Property Relationships Act 1976 (PRA or Act) is an Act that governs the relationships and properties in New Zealand. This includes marriages, civil unions, and de facto relationships. 

Typically, this was for ‘couples’, but the Courts will consider relationships with multiple people if each ‘relationship’ ticks the requirements under the PRA, which can be quite complicated. There was a recent case law where a man married to a woman, was also in a relationship with another woman. The women could therefore both bring claims against the man which raises the question “how many halves can you have?”, because theoretically, both women could claim ‘half’ of his relationship property. 

The PRA governs relationship property in the absence of a contracting out agreement. Therefore it is crucial to understand what the Act is before considering whether you need a contracting out agreement or not. The Act is somewhat traditional and assumes a conventional ‘mum and dad’ relationship where the man is the breadwinner and the woman is a stay-at-home mum, and all assets and finances are shared. It is evident today that most couples do not fit into this relationship construct and is somewhat outdated. The PRA has been developed to cover many structures of relationships, including marriages, civil unions, and de facto relationships. 

"It is evident today that most couples do not fit into this relationship construct and is somewhat outdated."

What is a de facto relationship? ‘De facto’ has many facets and is not just about living together. It looks at the duration of a relationship, whether you are living together, have a sexual relationship, have financial dependence, ownership and use of property, degree of mutual commitment to a shared life, public perception, the support of children, and the list goes on! Nowadays you often have 16-year-olds referring to their ‘partner’ as opposed to their boyfriend or girlfriend so the concept is embedded in our society, but perhaps not in a legal fashion. There are many misconceptions about de facto relationships, e.g. if a couple do not live together, have separate income, and do not share their finances, they may not be in a de facto relationship. These are not overriding factors for the court. There are many factors that the Courts take into consideration when looking at a relationship holistically and compile these factors into a joint overarching assessment. This is why it can be difficult to define ‘de facto’, especially when people are in multiple relationships for example or do not “tick the box” because of a particular belief or culture.

Under the PRA, there is a triggering point of when the default provision of equal shares to your relationship property applies. This is after 3 years of marriage, de facto or civil union.  Unfortunately, many people mistakenly think it is 2 years.  In any case, this is when you apparently get serious in your relationship and would need to consider whether or not you will need a contracting out agreement. For some people the commencement of their relationship is uncertain and vague as it is artificial to say the de facto relationship began at this date, because even if you started living together at a certain date, you could have other factors triggered before or after this date.  It is a complicated assessment.

Relationship Property 

What is relationship property? It is important to understand this term as it is a fundamental concept in the PRA and contracting out agreements. A common misconception is that relationship property is only the shared ownership of assets that a couple have.  Many assume that separate bank accounts, properties, and income does not apply. Yes income! For example, “this property or bank account is under my name so it’s only mine”. This is not the case under NZ law as relationship property is defined very generically, which includes all assets and liabilities regardless of ownership, income (regardless of whether one or both of you work and get paid into a separate bank account), and separate bank accounts. 

Additionally, ‘trusts’ is another misconception. One may think that if their property is in a trust, it is protected from claims. Unfortunately, trusts do not provide 100% protection, particularly trusts created after the relationship, as there is room for intermingling between separate income and relationship property. Furthermore, contributions or intermingling can give rise to claim, e.g. your partner gardening or renovating your separate property, or expenses being paid from your joint bank account, blurring the lines between their contributions and your shares. Therefore, it is important to make sure you have not accidentally intermingled your separate property with relationship property, ensuring that your partner cannot claim part of your assets, or mixing liabilities, such as debt.      

"Unfortunately, trusts do not provide 100% protection, particularly trusts created after the relationship"

It is very rare and hard to keep separate property completely separate, so it is important to properly consider whether or not you need a contracting out agreement. 

Contracting Out Agreement 

A contracting out agreement, also known as a “pre-nup”, “mid-nup”, “post-nup”, or separation agreement, contracts out of the default position of half shares under S21 of the PRA. If you do not want to revert to the default position, you will need to ‘contract out’ of that position and enter into an agreement. 

This type of agreement is very different to other contracts. There is a requirement for full disclosure, so that the parties entering into it accurately disclose all assets and information to ensure fairness. Each party needs to obtain independent legal advice on the agreement, as well as witnessing the agreement in order to certify that it is fair and that they have complied with the requirements under the Act. It is quite a process to go through, but it is important to comply and ensure this is done right because failures could result in parties applying to set aside the contracting out agreement.  It therefore cannot be signed under duress or any undue influence.

If one party to a relationship passes away and has no contracting out agreement, then the other party can claim (at least) half of their deceased partner’s assets under the PRA.
There is a lot to consider when thinking about a contracting out agreement. This is something serious and important for everybody to consider; if you are in a committed relationship, then these Acts and provisions will likely apply. Please get legal advice before not after things blow up. We at Queen City Law are happy to help and wish you the best of luck.

If you have any property, construction, or litigation queries, please feel free to contact Tina Hwang or the Property Team on property@qcl.co.nz.

Disclaimer:
We have taken care to ensure that the information given is accurate, however it is intended for general guidance only and it should not be relied upon in individual cases. Professional advice should always be sought before any decision or action is taken.