Relationship Property

Contracting Out Agreements

Contracting Out Agreements are a useful tool for married, engaged and de facto couples who wish to make an agreement as to their relationship property where the provisions that would otherwise apply under the Property (Relationships) Act 1976 (“Act”) are inconsistent with the couples’ wishes. The Act includes a presumption of equal sharing of relationship property, including on the death of one party to the relationship (even where that party’s will provides otherwise).

A Contracting Out Agreement can be used to:

• Define what constitutes relationship property of the parties and what property is separate property of each party;
• Govern how relationship property is to be divided upon the relationship ending, both due to the death of one of the parties and in the case of a relationship breakdown;
• Specify any particular agreement the parties’ have as to the use and occupation of their family home; and
• Set out the parties’ intentions as to how trust-owned property should be applied by the trustees of the relevant trust upon the relationship ending (although these clauses will be non-binding because the trustees retain the discretions they have as trustees).

For a Contracting Out Agreement to be validly entered into, each party must obtain independent legal advice regarding their relationship property entitlements under the Act, the effect of entering into the Agreement, and whether the Agreement is fair and reasonable. Each party’s signature on the Agreement must be witnessed by their lawyer.

We recommend that couples review their Contracting Out Agreements every five years or as their circumstances change, including the birth or adoption of a child or following a material change in their assets.

Separation

The end of a relationship can be a stressful time and even more so when there are relationship property aspects to work through. The Act sets out the principles and provisions as to what constitutes relationship property of a couple and how that property is to be divided, subject to any valid Contracting Out Agreement entered into by the parties. However, every situation is unique and it the applying those principles to the separated couple’s situation is not always straightforward and often results in a period of negotiation. The situation becomes more complex when trusts are involved and trustees are left with the task of managing trust property and deciding whether it should be distributed, and if so, how. Trustees in these circumstances will often benefit from legal advice independent from both parties to the relationship that has ended.

Once an agreement has been reached between the parties, that agreement can be formalised in a separation agreement. Each party to that agreement must obtain independent legal advice as to the effect and implications of the agreement and have their signature on the agreement witnessed by their lawyer.

Our Trusts and Wealth Protection Team are here to help with all the legal aspects of relationship property.

Contact us to discuss how we can help you.

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