Contracting-Out Agreements: What the Law Actually Says

The Legal Foundation

The Property (Relationships) Act 1976

This Act governs how property is divided when a qualifying relationship ends. It applies to marriages, civil unions, and de facto relationships of three years or more.

The Act's default position is equal sharing of relationship property. However, section 21 specifically allows couples to contract out of these default rules by entering into a written agreement.

This is not a loophole - it is an intentional feature of the law, recognising that couples should be able to make their own arrangements if both agree.

s21

Section 21: The Legal Basis

What the Act allows you to agree on

The status, ownership, and division of property
How affairs will be divided if one dies or if you separate
Any other matter relating to your property

Section 21F

Four requirements for a valid agreement.

All four must be met. If any are missing, the agreement is not valid and has no legal effect.

1

Written Form

The agreement must be in writing. Oral agreements about relationship property are not enforceable, no matter how clear or witnessed.

2

Signature

Both parties must sign the agreement. Electronic signatures may be acceptable, but physical signatures are preferred for certainty.

3

Independent Legal Advice

Each party must receive independent legal advice before signing. This cannot be waived.

The lawyers cannot be from the same firm.

4

Lawyer's Certificate

Each party's lawyer must certify that they explained the effect and implications of the agreement to their client before signing.

The independent legal advice requirement is the most common issue. It exists to ensure both parties genuinely understand what they are signing. Shortcuts here can invalidate the entire agreement.

Section 21J

The "serious injustice" threshold.

Even if an agreement meets all formal requirements, a court can set it aside if giving effect to it would cause "serious injustice."

This threshold is deliberately high. Courts are reluctant to interfere with agreements that adults have knowingly entered into with proper advice.

"Serious injustice" means more than unfairness or a poor bargain. The agreement must produce an outcome that is unconscionable or grossly unfair.

Courts consider all circumstances, including:

The provisions of the agreement

How long ago the agreement was made

Whether it was unfair or unreasonable when made

Whether circumstances have changed significantly

The performance or non-performance of the agreement

Case Law Guidance

What the courts have established.

Key principles from New Zealand case law that guide how agreements are interpreted.

The threshold is high

Courts have consistently held that "serious injustice" means more than unfairness or a poor bargain. The agreement must produce an outcome that is unconscionable or grossly unfair.

Both parties must understand

The independent legal advice requirement exists to ensure both parties genuinely understand what they are signing. Inadequate advice can be grounds for setting aside an agreement.

Changed circumstances matter

An agreement that was fair when signed may become unjust if circumstances change dramatically, particularly if those changes were not contemplated by the agreement.

Unforeseen children

The birth of children during a relationship can be a significant changed circumstance, particularly if the agreement made no provision for them.

Relationship property vs separate property

Understanding how the Act classifies property is essential for any contracting-out agreement.

Relationship Property

Section 8 - Shared 50/50

Family home
Family chattels
Property acquired during relationship
Income and assets intermingled
Policy proceeds on relationship property

Separate Property

Sections 9-10 - Usually stays with owner

Property owned before relationship
Inheritances
Gifts from third parties
Personal injury damages
Property kept separate by agreement

A contracting-out agreement can change how specific property is classified, keeping property separate that would otherwise become relationship property.

Best Practices

Making an agreement robust.

Based on how courts interpret the law, certain practices make agreements more likely to withstand challenge.

Full disclosure

Both parties should fully disclose their financial positions before signing.

Reasonable provisions

Agreements that are fair to both parties are less likely to be challenged.

No pressure

Both parties should have adequate time to consider the agreement without pressure.

Future planning

Consider likely future scenarios (children, inheritance, career changes) and address them.

Quality legal advice

Ensure both lawyers properly explain the effect of the agreement.

Review provisions

Include terms for reviewing and updating the agreement as circumstances change.

Key Takeaways

Section 21 of the Property (Relationships) Act specifically allows contracting out
Four requirements must be met: written form, signatures, independent advice, lawyer certification
Courts can set aside agreements only if they would cause "serious injustice"
This is a high threshold that is rarely met for properly prepared agreements
Full disclosure, fairness, and quality advice make agreements more robust

This article provides general information about the law. Your situation may have specific factors that affect how the law applies. We can help you understand how these principles apply to your circumstances.

What the law actually says.