Oct 2, 2019, 8:07:00 AM

Should you get a “pre-nuptial” agreement?

Topics: NZ Finance, NZ Mortgage Adviser, Home Loan Advice, Buying property in New Zealand, Contracting Out Agreement, Pre-nuptial 0

It’s not uncommon for couples to contribute different amounts when buying their first family home. Under New Zealand law, once a couple has been living together for three years or more, they are subject to the Property (Relationships) Act, which states that assets are shared equally regardless of how much each person initially contributed. A “pre-nup”– or a Contracting Out Agreement – is a way to preserve respective contributions in the event of a separation or divorce.

Untitled design (26)

What happens to the family home in a divorce?
Under the Property (Relationships) Act, the family home, furniture and chattels are considered relationship property, and are shared equally in a divorce or separation regardless of when they were purchased and by whom. Relationship property will usually include:

• The family home and chattels (including the family car, household furniture and effects, and anything else owned by the family or used for family purposes).
• Family businesses and investments (the general rule is that any business used to produce family income and any savings or investments made out of family income are treated as relationship property).
• Property owned jointly or in equal shares by the spouses or partners.
• Property acquired during the relationship.
• Property acquired in contemplation of the relationship and intended for common use or common benefit.
• Contributions to superannuation and insurance policies after the relationship began.
• Increases in the value of relationship property, or any income from it or any proceeds from selling it.

In a divorce or separation, relationship property is equally shared once the relationship has been in existence for three years or more. This can have serious financial implications, particularly if one party owned the home prior to the relationship. If you don't want this law to apply to you, it's important that you have a binding Contracting Out Agreement to mitigate a potential financial loss in a divorce or separation.

What is a Contracting Out Agreement?
A Contracting Out Agreement – or a pre-nuptial agreement as it is more commonly known – sets out in writing how relationship property will be divided in the event of a separation or divorce. It’s a way to ring fence certain assets and liabilities, and to ensure there are clear expectations as to how both existing and future assets and liabilities will be divided.

You and your partner can write up your own agreement and decide how your relationship property will be divided should your relationship end, but you will need to follow these rules or the agreement may not be legally enforceable:

• The agreement has to be in writing and signed by both parties.
• Each party must have taken independent legal advice before signing the agreement.
• The signature of each partner has to be witnessed by a lawyer, who must certify that he or she has explained to the party the effect and implications of the agreement.

What are the benefits?
Contracting Out Agreements have a number of benefits:

• Guaranteed financial security for children from a previous relationship.
• Protect spouses from each other’s debts.
• Protect significant assets owned before the relationship.
• Protect a family heirloom or substantial inheritance.
• Make the separation process easier both emotionally and financially.
• Provide security during and after marriage.

Who should get one?
If you're buying a house with a partner you may need to protect a gift or loan from your parents. The same applies if you are contributing different amounts to a new property purchase and want your contribution to remain separate property. Similarly, if you’re in a new relationship the second time around or you have children from a previous relationship – a Contracting Out Agreement will protect both yours and their interests.

Talk to your family lawyer about drafting a Contracting Out Agreement to protect you from any future financial loss. For any other financial advice or assistance in securing a mortgage, get in touch with a Mortgage Express adviser.

For more tips and advice around managing your money, consolidating your debts, or applying for finance, follow Mortgage Express on Facebook and Twitter, or contact one of our mortgage advisers.


Disclaimer:

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

A Disclosure Statement is available on request and free of charg