Probate vs. Letters of Administration
Most people think prenups are something celebrities sign before a whirlwind wedding. But in New Zealand, a contracting out agreement is far more common, far more practical and, for many couples, essential. Under the Property (Relationships) Act 1976 (“Act”), the guiding principle is that all relationship property should be shared equally when a de facto relationship, civil union, or marriage ends. There are certain exceptions – as always. The only way to avoid the presumed 50/50 sharing regime is to contract out of the Act. That is exactly what a contracting out agreement does. If the agreement meets the legal requirements, it allows couples to decide for themselves how their assets and liabilities will be divided if the relationship ends through separation or death. What happens if you don’t have one? If you are in a qualifying relationship and don’t have a contracting out agreement in place, most of what you own or owe could be divided equally if you separate or if one partner dies. Think you are safe because the asset is in your sole name or was gifted to you? Think again. In certain circumstances these types of property could still be up for equal division. Why you should seriously consider one For many people, the primary motivation is protection. A contracting out agreement can ring fence specific assets so they remain your separate property, such as a home you purchased before the relationship or savings you built independently. It can also ensure you do not become responsible for your partner’s debt, such as a student loan or personal liabilities that you had no part in creating. Just as importantly, a contracting out agreement sets clear expectations for how newly acquired assets and debts are owned and managed during the relationship and what will happen to those if the relationship ends. By defining everything upfront, the agreement can prevent confusion, conflict and costly disputes later. When can you get a contracting out agreement? A contracting out agreement can be put in place at almost any stage. Some couples arrange one at the very beginning of a relationship. Others do it after buying a home together, having children or blending finances. It is also possible to enter into one at the end of a relationship. However, the safest and cleanest approach is to get one as early as possible, ideally before the relationship becomes a qualifying relationship or before either partner acquires rights under the Act.
Even a small error in your Will can cause significant delays and unnecessary expenses once it reaches the High Court for Probate.
Many people are surprised to learn that they may already be in a de facto relationship in the eyes of New Zealand law, even if they have never formally defined the relationship. This legal status can have significant consequences for how property, assets and liabilities are treated if the relationship ends. Why does it matter? It is important to understand whether you are in a de facto relationship or not because once a de facto relationship has lasted three years (or two years if there is a child of the relationship), relationship property is generally subject to equal sharing. Critically, the equal sharing regime usually includes the home the couple lives in, even if that property was acquired by one partner before the relationship began and/or is in their sole name. What is a de facto relationship? Under the Property (Relationships) Act 1976 (“the Act”), a de facto relationship exists when two people of any gender, who are both at least 18 and who are not married or in a civil union with each other, are living together as a couple. Although the term “living together” sounds simple, the law interprets it more broadly than many expect. How the court decides if a de facto relationship exists If there is uncertainty about whether a de facto relationship exists, or when it started, the Court considers a range of factors. These include the length of the relationship, whether the couple shares a home and a bedroom, whether the partners have a sexual relationship and how their financial affairs are arranged, including whether there is dependence or interdependence between them. The Court may also look at whether the partners own or use property together, whether they demonstrate a mutual commitment to a shared life, whether they care for children together, how household duties are divided and how their relationship is viewed by friends, family and the public. No single factor is decisive. The Court has a wide discretion to weigh these circumstances and determine whether a de facto relationship exists based on the overall context. De facto relationships of short duration The Act can also apply to de facto relationships of short duration (i.e. less than three years). This may occur if the couple shares a child or if one partner has made a substantial contribution and the Court considers that a serious injustice would result. In these situations, property is divided according to each partner’s contributions rather than the equal sharing regime. Polyamorous relationships Although the Act defines a de facto relationship as being between two persons, the Supreme Court ruled in 2023 that polyamorous relationships can also fall within the framework of the Act. The Court confirmed that a polyamorous partnership may amount to a series of de facto relationships. In the case before the Court, three partners were involved in overlapping relationships, (two de facto relationships and one marriage) and their intermingling relationship property interests were subject to division under the Act. Protect yourself – get a contracting out agreement If you are in a de facto relationship, or think you may be in one, it is sensible to consider a contracting out agreement. This agreement can ring fence specific assets so they remain your separate property and can ensure you do not become responsible for your partner’s debt that you had no part in creating. It can also set out clear expectations as to how future property will be classified and how assets and liabilities will be divided if the relationship ends through separation or death.
