What You Need to Know About “Prenups” in New Zealand

What You Need to Know About “Prenups” in New Zealand

Relationships in New Zealand these days can be varied and complicated. People involve themselves in a variety of ways whether it be a long term, or short term involvement, second or third marriages, same sex relationships, blended families – there is a lot of variety out there!

It is little wonder that we are seeing more clients ask about what happens to their property in the event their relationships come to an untimely end. People want information about what happens and how they can better plan to avoid a bad outcome.

To follow is some information to get you thinking in terms of planning ahead should your relationship come to an untimely end. As always, we are here to help and more than happy to talk to you about your specific circumstances.

What is a Prenup?

The relevant law that applies to relationships and the division of property in New Zealand is the Property (Relationships) Act 1976 (“the Act”).  To qualify under the Act, you must have been in a long term committed relationship for at least 3 years or have certain circumstances that make it clear that you are committed to each other.

Being married and having children are two classic examples of relationship features that may indicate long term commitment. So too is the joint purchase of major assets, sexual intimacy and exclusiveness and holding yourselves out as committed partners etc. There are several things the Court can point to in order to conclude that a relationship qualifies under the Act.

If you qualify under the Act, the presumption of equal sharing applies to the property owned by the couple. Equal sharing means that each partner to the relationship shares 50:50 in the assets and liabilities of the relationship.

For anyone that doesn’t like the idea of equal sharing, they can enter into a written Agreement to determine what will happen if the relationship concludes. This is sometimes called a “Prenup”.

A “Prenup” can be called other names such as a Relationship Property Agreement or Contracting Out Agreement, but they are essentially the same – an Agreement whereby the parties are contracting out (hence the name) of the equal sharing provisions of the Act in order to determine for themselves what they want to happen if they reach that separation point.

Note – the term “nuptial” means anything relating to marriage or weddings. In New Zealand, you don’t need to have taken nuptials to find yourself subject to the equal 50:50 sharing provisions in the Act.

How Do I Enter Into An Agreement?

It’s a good idea to start a conversation with your partner regarding what happens should your relationship come to an end. Keep in mind that relationships in New Zealand do come to an end one way or another. Death comes to us all after all.

It’s important to time your conversation well. It can be a difficult and embarrassing chat, but it is one that needs to be had. Keep in mind also that you have 3 years before your committed relationship is subject to the equal sharing provisions of the Act so you don’t need to do it in the first week. Just make sure you don’t leave it too late.

We always recommend taking legal advice. We can help you determine your legal options and provide all the advice necessary. Whether we see you alone or if both of you come in to see us, we can give you the advice you need in a clear, easy to understand manner.

Once you have decided an Agreement can work for you and your partner, we can help getting you through to it being completed and binding on both of you. There are a few things necessary for an Agreement to be binding under the Act.

It must:

1. Be in writing; and
2. Be signed by the parties; and
3. Be witnessed by independent lawyers; with
4. Each of those independent lawyers advising their respective clients prior to signing as to the effect and implications of the Agreement; and
5. A certification by each lawyer that the effects and implications of the Agreement have been explained.

The requirements mentioned above ensure that that a comprehensive Agreement is entered into with each party having been fully informed of the implications.

More than anything, any Agreement when completed needs to be fair, reasonable and able to satisfy the test which the Court will use to determine whether an agreement should be overturned – that being the presence of Serious Injustice.

How Do We Keep It Fair?

It is important to ensure that the Agreement is fair to both parties with no aspects of serious injustice resulting.

There are several ways that this can be achieved:

1. Clearly determining your objectives – parties to an Agreement need to have a clear understanding of why they are entering it in the first place. The couple may be wanting to protect capital held by one party prior to the relationship, make provision for the receipt of inheritances from other family members, classify types of property including beneficial interests in Family Trusts or just simply wanting to keep their property separate. Knowing why you are doing it is key.
2. Disclosure – making sure that both of you (and your lawyers) know what you both have is important. After all, having all your cards on the table is only fair. If you fail to disclose significant assets, this could introduce serious injustice. In more complex situations involving businesses or Family Trust assets, disclosure of annual accounts or asset schedules can be necessary.
3. Values – we recommend that you have an idea as to what various items are worth. Obtaining values doesn’t necessarily need to be a difficult task. Your local Registered Valuer is always happy to help. Knowing what something is worth now can be important particularly if you are wanting to protect any increase in value of assets over the course of your relationship.
4. All for one – if the basis of the Agreement is to ensure that one party receives all the property at the end of the relationship, that might be a problem in terms of overall fairness. For most couples, each of them contribute to the relationship in a variety of ways. Some contributions can be financial, others may be service contributions. It is important to recognise that fairness usually requires both parties to receive some sort of benefit from the Agreement.
5. Keeping it updated – often during the term of a relationship, things can change. Keeping it fair means going back to the signed Agreement and reflecting on whether it remains fair in changing circumstances. If marriage occurs, if children present themselves or if one party gives up work to be in the home, these occurrences should trigger the parties to think about whether the Agreement is still fair for both of them. Going back to their lawyers to take another look at the provisions of the Agreement is a good move.

Making sure that the Agreement is fair to both parties at the date it is entered into, together with it remaining fair during the term of the relationship is essential to obtaining a good outcome.

What Could Be Included

The Agreement can cover a wide variety of topics. Such as:

1. Division of Family Home & Chattels – for most of us, our home is our major asset. If people come into a relationship with unequal contributions to the purchase of the home, an Agreement could cover each of the parties receiving back their initial contributions once the property is sold. Family Chattels can be valuable so determining who gets what can give some much-needed clarity.
2. Ownership of businesses, trusts, inheritances, or investments – particularly if these items have come into the relationship from sources other than the joint efforts of the parties. It is important to obtain protection and clarity in terms of these important property items at the end of the relationship.
3. Assets acquired during the relationship – for most people, any assets acquired jointly during the relationship are to be shared equally. For anyone acquiring assets during the relationship with unequal contributions, they may want to protect those unequal contributions through the signed Agreement.
4. Superannuation / KiwiSaver – protecting these important funds for the benefit of your retirement can make sense.
5. Other – keep in mind that this is your Relationship Agreement. You can choose to determine other things such as whether the Agreement will continue following you passing and be binding on your Estate or how occupation of your Family Home is going to be dealt with. There are several options to fit your family circumstances.

Whether an Agreement is reasonably simple or more involved, will depend on you and your relationship. We are always here to help you with your options.

Who Should Consider a Prenup?

People that need to think seriously about completing a Relationship Agreement might be:

1. People who bring significant prior held assets into a relationship.
2. Anyone with a beneficial interest in a Family Trust – either their own or a prior generation (i.e. children whose parents who have significant assets held by a Family Trust).
3. Couples wanting to keep their financial independence – for some people, keeping their affairs separate despite their committed relationship is important. A Relationship Agreement can help ensure this situation remains.
4. Second Marriages / Blended Families – for anyone wanting to protect assets to meet their obligations to their own children, a Relationship Agreement can work well.
5. Couples before the 3 year threshold – anyone in a relationship wanting to ensure the right outcome can enter into an Agreement at any time.

Other Considerations

It is important when thinking about these issues to consider other aspects of your relationship coming to an end. Having a good Will in place to cover you and your family in the event of an untimely death is key. Also, having Enduring Powers of Attorney completed to cover off any periods of temporary / permanent loss of decision-making ability.

We are always here to help you consider these important issues.

As a Senior Associate in Harkness Henry, I take pride in specialising in Relationship Property Agreements. There are a number of factors that need to be fully worked through in order to achieve a fair and effective Agreement in place for you and your relationship. We have a number of experts like me who are ready to listen to you and are able to respond to all your relationship property needs.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.