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FAQs: Pre-nups & Contracting Out Agreements

Updated: May 21

FAQs: Pre-nups & Contracting Out Agreements

Generally, a contracting out agreement can be likened to an insurance policy in terms of the peace of mind it provides the couple; you hope your house won’t burn down but you insure it anyway, so why not enter into a contracting out agreement during the early stages of a relationship to know you are protected if the relationship does not work out, or you are separated by death.

What is a contracting out agreement?

A contracting out agreement (also known as a “pre-nup” or "prenuptial agreement"), is a legal contract that couples can enter into rather than relying solely on the default equal sharing provisions of the Property (Relationships) Act 1976 (“Act”). A contracting out agreement sets out how a couple will divide their property and assets if their relationship ends, or if one partner passes away. It allows individuals to customise the division of their assets according to their preferences.

Do I need to get a contracting out agreement?

If you do not want to divide your assets as set out in the Act, then you should have a contracting out agreement that sets out how assets should be divided. This can be as simple as protecting only the deposit for your home, a business or a family inheritance. If you have assets that you would like certainty of ownership in the event of a separation or death, a contracting out agreement is essential. It is important to realise that a contracting out agreement is binding upon death too, so this can be a way of protecting your children, or your partner upon your death. We often see people that want to form a trust during the relationship thinking this will protect their assets, this is not the case. Any trust formed during the relationship can become relationship property, or compensation can be awarded for dispositions of property to such a trust. Even trusts formed prior to the relationship can be vulnerable. It is more and more common to see young couples buying their first home entering into a contracting out agreement when they make unequal contributions to the deposit. In this case, couples often leave everything as it would be pursuant to the Act, but ensure they get their deposit back. Other couples completely contract out and keep everything as separate property. This is a very personal choice and we are here to guide you, and answer your questions to allow you to understand if this process is the right one for you.

Do I need to be married to have a contracting out agreement?

A contracting out agreement is not just for couples getting married. As the provisions of the Act apply even when couples are not married, contracting out agreements are therefore an important tool for protecting assets in any relationship. Once you have been in a relationship for three years (or less in certain circumstances), your partner could be entitled to 50% of your assets.

When should I get a contracting out agreement?

You can get a contracting out agreement at any point during your relationship. Ideally, you would enter the contracting out agreement before the Act starts to apply, but it is not essential. Generally, the Act starts to apply when a couple has lived together in a de facto relationship for three years or more, or they are married or in a civil union (or any combination of these). However, there are some circumstances where the Act can apply sooner, for instance when children are involved.

What happens if I don’t get a contracting out agreement?

If you do not sign a contracting out agreement, then the provisions of the Act will apply and, upon separation or death, your partner or their estate may be entitled to half of your assets. This can be the case even if you do not have joint bank accounts, or their name is not on the title of the property.

Can I just write up my own contracting out agreement? Why do I need a lawyer?

Whilst you could write your own, a contracting out agreement will not be legally binding unless both parties have signed it, received independent legal advice, and certified by both parties’ lawyers. A lawyer is certifying that they have fully explained the legal ramifications of entering into the agreement. To do this, the lawyer needs to know the full assets of each party in order to be able to explain the legal implications. There are certain details that should be included in the contracting out agreement, and certain phrases can have different meanings when they are included in such a document, so it is often more efficient for your lawyer to draft the agreement than it is for them to review and adjust yours.

Need help?

We specialise in relationship property which enables us to assist you to navigate this process and provide you with expert guidance and support. We have extensive commercial knowledge and understand structures, businesses, trusts, and tax, which enables us to quickly and easily identify the issues and work with you to resolve them.

This article is intended for informational purposes only and should not replace specific advice. For personalised advice on all relationship property issues please contact us.

This article was accurate at the time of publishing.


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