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Can you rely on a Contracting Out Agreement?

June 24, 2019

Twelve years ago, Terry spent considerable time and money getting a Contracting Out agreement (pre nuptial agreement) completed with his partner, Monique. Not only did it cost him several thousand in legal costs, it was also pretty stressful as Monique didn’t really want to sign it. Now, he feels it was all worth it because he and Monique have just separated and he is relieved that he insisted on protecting his assets, including the home, with that agreement.

Terry came to his first appointment with us clutching his Contracting Out Agreement and feeling confident that while Monique may have decided to leave their marriage, she wouldn’t be doing so with half his hard earned assets. His confidence was to be shortlived.

On speaking with Terry, we learned that in the twelve years since they signed their agreement, a lot of changes had occurred for Monique and Terry. Terry had had a period whereby he hadn’t been in work and Monique had supported him financially, paying all the expenses on the home. They had bought and sold the original home Terry owned along with a number of the other assets they had brought into the relationship and included in the agreement. A couple of years after signing the agreement, they had married and three children quickly followed. On the birth of their first child, Monique gave up her paid employment and become a full time mother. Among other things, the agreement says that Monique has no claim to the home and no claims for economic disparity compensation. At no time, did they review the agreement. Terry told us he hadn’t wanted to spend any more money on it.

We had to tell Terry that there is a high risk his agreement will be challenged by Monique and, if she is successful, the Court would set it aside. If that happens, their property will be divided according to the Property (relationships) Act 1976 and Monique would receive at least a half share of the property that he had tried to protect from a relationship property claim. Terry acknowledged that, in avoiding the cost of reviewing his agreement, he had potentially cost himself a lot more.

Regularly reviewing your Contracting Out Agreement helps to ensure it reflects any changes in your financial or personal circumstances. Like your will, your Contracting Out Agreement needs to be regularly reviewed to ensure it reflects your wishes. While you may not think there have been any changes in your circumstances that make a review necessary, relationship property law and how it is applied by the Courts is constantly evolving. Reviewing your agreement will ensure that it reflects changes in the law and remains current.

If your agreement is not regularly reviewed and you and your partner separate (or one of you dies), you run the risk that the agreement is of no use because it doesn’t reflect your financial circumstances at that time or any changes that occurred throughout your relationship. Furthermore, you run the risk that a Court may decide that the Agreement has become unjust and therefore shouldn’t be of effect thus undoing all your effort and cost of putting the Agreement in place.

We tell our clients to think of their Contracting Out Agreement as similar to the insurance policy they have for their home. You don’t pay one insurance premium and expect it to protect you from the loss of your home forever after. Instead, you regularly pay to maintain your insurance and regularly check that your insurance policy meets your needs and circumstances. Statistically, there is more likelihood of experiencing a separation than your home burning down or being struck by an act of God yet most people are like Terry and don’t pay as much diligence to putting in place a sound Contracting Out Agreement and regularly reviewing it. Don’t be like Terry.

If you would like to discuss protecting yourself from relationship property claims or having your existing arrangements reviewed , call the team at Family Law Results on (09) 297 2010.

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