How to (really) Save Money on a Contracting Out Agreement

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You will save money on your contracting out agreement (or prenup) if you don’t go for “more agreement” than you need. Sometimes less is…well, less. But you will really save money on your agreement if you make sure it is fit for purpose.  So get an expert, and take their advice.

There are two ways to save money on a contracting out agreement.  The first is to depart as little as possible from the provisions of the Act – understand what you actually want to achieve, and limit the agreement to just achieving that.  The closer your sharing regime is to what the law would do, the less work needed on the agreement.

The second is to have your lawyer do a proper job of it.  The true cost of a bad agreement is significant.   An agreement is only fit for purpose if your lawyer is clear on your purpose, and creates an agreement that will be robust enough to be enforced later on.  Done properly, this is not a document that can be signed off at the first meeting.

Keeping it simple

Why do you want a contracting out agreement?

To save money on an agreement, just get the agreement you need.  If you are a new couple buying a home and want to protect one person’s larger deposit, get an agreement that just does that.  The more layers you want to add to it (e.g. to keep anything you earn or buy separate, not to share increases in each other’s separate assets), the more work both lawyers have to do to protect the agreement from future challenge.  The more work a lawyer has to do, the more expensive the agreement.

Sometimes a more complicated agreement is what you need, however, for example to future proof and make sure it continues to be fair as the relationship progresses.  You may have some assets you want to ring fence and others in respect of which you will share capital growth.  Or your lawyer may recommend a more complicated agreement as necessary to ensure it is still enforceable when you need it to be.

Get a lawyer who does a good job of it

Beware a generic agreement.  Some lawyers are happy to send out one-size-fits-all standard agreements in which the only personal information is the names and the list of assets in the back.  However an agreement that will work well for an older couple, at the end of their careers, with assets and children that predate the relationship will not be sufficient for the issues facing a young couple just starting out.   A non-personalised agreement creates risk for you in the future, and (if the other lawyer is doing their job) additional work for the other lawyer to fix it up.

If some years down the track the agreement is successfully challenged, the whole agreement goes – and the parties’ positions revert to where they would have been if there had never been an agreement.

What to expect: what does doing a “good job” look like?

A contracting out agreement must to meet the requirements of section 21 of the Property (Relationships) Act 1976 (the Act) to be enforceable.  The agreement is in writing, signed by both parties, after independent legal advice – and each lawyer must certify that the party has had the effects and implications of the agreement explained to them.

Those requirements are for good reason.  A contracting out agreement can have far reaching (and sometimes unintended) effects.

Your lawyer will ask you about your life, relationship and assets because the effect of an agreement will differ depending on those things.

Be prepared for your lawyer to advise you to ask for some changes to make it fairer (and more durable) or to better achieve your purpose.   A review clause is not enough to future proof an agreement!

A well thought out agreement will cost both parties less (in the long run), and may even improve your relationship.

When is an agreement inadequate?

An agreement is at risk of challenge if:

  • it is seriously unfair i.e. it would cause “serious injustice” to enforce it (section 21J). That can be because it was unfair from the beginning or because it became unfair over time.
  • the formalities of signing were not met (section 21F). One key requirement is that the parties have had independent advice, and each lawyer has explained the effects and implications of the agreement.  A lawyer that has not done their job properly has not satisfied that requirement.
  • It isn’t enforceable as a contract e.g. because of duress (a particular sort of pressure) or undue influence, and where there has been a sufficient mistake or misrepresentation (s21G).

If you’re interested, listen to the episode of our podcast Divorce Café on contracting out agreements – available now through, on Spotify, Apple Podcasts, Google Podcasts, and Youtube!

You can also call us for advice on your own situation and whether you need a contracting out agreement.  Call and speak to Amanda, Taina or Shelley or one of the relationship property team on 09 430 4350.

A series of podcasts brought to you by Henderson Reeves

Hosted by our own Taina Henderson and Shelley Funnell, Divorce Cafe aims to demystify, detangle and (hopefully) detox the legal process that follows a separation.

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Taina Henderson and Shelley Funnell sitting at a table drinking coffee and sharing a laugh.