Brief instruction to Contracting-Out Agreements and Separation Agreements

2018-03-22T21:14:07+00:00

-Can partners make their own private agreement on how to divide their property without going to Court?

We learned in our previous article that when a relationship longer than 3 years ends, the court will divide relationship property equally according to Property Relationship Act 1976.

 

It is often not as easy as it sounds, because it can involve many complicated issues when determining what is or is not included in the relationship property or relationship debt.

 

The Part 6 (s21-21T) of the Act allows spouses or partners to decide themselves how their relationship property is to be divided without going to court.

 

Under s 21 of the Act, the parties can agree to opt-out or contract-out of the property of the property sharing regime imposed on them by the Act. It is called a ‘contracting-out’ agreement. It needs to be made during a relationship or in contemplation of entering into a relationship.

The agreement made after a relationship ends is called ‘separation agreement’ or ‘settlement agreement’. In this case, s 21A of the Act applies. The purpose of the separation agreement is to record and formalise the division of property at the end of a relationship.

 

One of the major differences between contracting out agreements and separation agreements is that it is not necessary for the contracting out agreement to reflect entitlement under the Act. In contrast, if the separation agreement departs too far from the statutory regime it is likely to be set aside.

 

Regardless whether it is a contracting out agreement or separation agreement, if the agreement results serious injustice to either party, the court will set aside the agreement under s 21J of the Act.

 

In a recent case, a couple made their own separation agreement under s 21A of the Act after the relationship ends. The husband was a farmer and had a lot more assets than his wife who was an intermediate-level school teacher.  When they ended the relationship, the wife made an accusation that the husband used violence against her during the relationship. Feeling pressured from the wife’s accusation, the husband signed the agreement which was exceptionally favourable to the wife. Later on the court decided to set aside this agreement according to s21J of the Act, because the parties did not have proper legal advice when making the agreement and the agreement caused serious injustice to the husband.

The above case tells us that we need to ensure each party must have taken independent legal advice before signing the agreement, and the agreement should not result serious injustice to any party.

 

Please also note that 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.

 

If your property division agreement was made overseas, you could be at a disadvantage because you might have not obtained independent advice about the agreement according to the New Zealand law.

 

Obtaining early legal advice will often save time and money and may reduce conflict.

 

Please note that this article is intended for general use. It does not constitute legal advice. If you wish to obtain further relevant information on this topic, please contact our professional team at Focus Law.