Article updated June 2024

One of the key considerations for setting aside a contracting out agreement (“COA”) is whether that COA is, or has become, seriously unjust. When considering whether a serious injustice has occurred, the Court needs to carefully balance the rights of the parties to make their own choices about their property pool using a properly constructed COA, with the overall outcome of that COA on the parties at the end of their relationship.

The irony underpinning most COA’s is that people don’t ordinarily enter relationships with the intention of separating. The concept of determining your rights, sometimes before those rights have even crystalised, can be a challenging and emotional task. Having a properly prepared COA can hopefully avoid a drawn-out dispute about property upon separation, and potentially save you thousands of dollars in legal fees.

The Property (Relationships) Act 1976

The Property (Relationships) Act 1976 (“ Act ”) sets out how the property of a qualifying relationship is to be divided upon separation or death. However, not everyone wants their property to be classified and divided in accordance with the Act. While each relationship turns on its own facts, in some cases, depending on how the parties have structured their affairs, the resulting division under the Act can be unintended or seem unfair.

Helpfully, section 21 of the Act allows parties to make their own agreement at any stage of a relationship as to the status, ownership, and division of their property. This is called a COA and it is designed to reflect the parties’ actual intentions measured against their individual sense of fairness.

When can a COA be set aside?

The usual reasons for setting aside a COA are:

• Where the compulsory formalities under the Act have not been met. To be enforceable, the COA must be in writing, signed, each party must have received independent legal advice before signing the COA, and each party’s signature must be witnessed by a lawyer who has certified that they have explained the effect and implications of the COA to their client;
• Where there has been some form of duress, undue influence, unconscionable bargain, mistake, or misrepresentation that has occurred in the process of negotiating and executing the COA; and/or
• Where giving effect to the COA would cause a serious injustice (i.e. if the COA is seriously unjust in itself, or if, due to the passing of time or a change in circumstances, the COA has become seriously unjust).

This article focuses on the third point above – serious injustice.

What does “serious injustice” mean?

We have seen a steady rise in the number of claimants looking to set aside a COA. This is sometimes because they think they will get a bigger share of the property pool under the Act rather than the COA and so will try their luck, or because they consider the COA is now incredibly unfair.

However, the Courts are frequently affirming the right to contract out of the Act as a fundamental cornerstone of section 21 and will not readily set aside correctly constructed COAs unless a proper case for doing so exists.

The mere fact that a COA results in an unequal division of property compared with what a claimant would have received under the Act is not enough. The Courts have recognised that the very purpose of a COA is to differ from the Act.

The threshold for establishing a serious injustice is high. In deciding whether giving effect to a COA would case a serious injustice, the Court must consider:

• the provisions of the COA;
• the length of time since it was made;
• whether it was unfair or unreasonable in light of all the circumstances at the time it was made;
• whether it has become unfair or unreasonable in light of any changes in circumstances since it was made (regardless if those changes were foreseeable or not to the parties);
• the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the COA in the first place; and
• any other matters that the Court considers relevant.

How to protect your interests under a COA

Instructing a lawyer who specialises in relationship property to prepare or advise on your COA is critical. The legal framework against which your COA must be prepared, and within which your rights need to be assessed can be complex. An experienced relationship property lawyer will be able to provide competent advice and drafting to ensure your assets are protected in the way that is carefully tailored to your individual circumstances, balanced against the risks of having the COA set aside in future.

If you already have a COA in place, then it’s equally important to regularly review and adjust your COA so that it reflects your individual circumstances and intentions as the course of your relationship and property pool changes over time. This will greatly reduce the possibility of one party seeking to overturn the COA due to serious injustice if the relationship ends, and reduce the likelihood of the COA actually being overturned by the Court.

Do you need to protect your assets? Would you like us to help you prepare or review a COA?

If you would like to become a client of Smith and Partners and get help with your  contracting out agreement , please contact Relationship Property expert Natalie Miller on 09 837 6843 or email natalie.miller@smithpartners.co.nz to set up an appointment to discuss your contracting out agreement.

We will require a retainer to be paid prior to your first meeting, and we cannot assist with legal aid matters.

Please note that in accordance with our obligations under the Lawyers and Conveyancers Act 2006, we cannot provide legal advice unless you have become a client of Smith and Partners and have received our Terms & Conditions of Engagement and Info for Clients.