Prenuptial Agreements (Prenup) - The Definitive New Zealand Guide
Our guide explains who needs a prenup, how to make one, what it includes and what it excludes, as well as must-know facts to help protect your current and future assets in the event of a relationship breakdown
Updated 1 July 2022
Prenup Summary:
Our guide covers:
Prenup Summary:
- When a relationship ends (either because of a separation or death), the law requires all relationship property to be divided equally under New Zealand law applying the Property (Relationships) Act.
- A prenuptial agreement (prenup) lets you opt-out of property law and, instead, create your own arrangements to mandate what happens to your relationship property should you separate. Prenups are legally known as 'contracting out agreements' in New Zealand.
- A prenup sets out what property is relationship property, what is separate property and what will happen to it. It specifies the proportion to split other property (to avoid the standard 50:50), and how assets that can't be divided should be treated (i.e. family pets, cars and sentimental items).
- A prenup is a legal document that must be witnessed by a lawyer. Both parties need separate legal advice to ensure it's fair and valid. The total cost to prepare and sign a prenup is usually between $1,000 and $3,000.
Our guide covers:
Our guide to Prenups, thanks to our friends at Agreeable
|
|
What is a Prenup?
To explain what a prenup is, we first look at the law and why prenups exist. New Zealanders rarely understand the full powers (and obligations) of the Property (Relationships) Act, which can cause problems after a relationship ends. In a nutshell, the law states that if you have lived together for three years or more, all "relationship property" will be split equally, subject to a few exceptions. Further to this, the law believes:
A prenup legally excludes both parties from the obligations of the Property (Relationships) Act. A couple's prenup sets out their rights to property, debts, income and other assets that have been purchased together or acquired individually, should the relationship end.
- Men and women have equal status
- Each partner has made an equal contribution to the relationship so relationship property should usually be shared equally (50:50)
- It usually doesn't matter if one person is more responsible than the other for the breakup of the relationship (New Zealand has a 'zero-fault' law)
- Unpaid work, such as caring for children and running the home, is equal in value to paid work.
A prenup legally excludes both parties from the obligations of the Property (Relationships) Act. A couple's prenup sets out their rights to property, debts, income and other assets that have been purchased together or acquired individually, should the relationship end.
Does a prenuptial agreement avoid the 50:50 relationship property split law?
Yes - section 21 of the Property (Relationships) Act permits two people in a relationship (i.e. husband and wife, civil union partners, de facto partners etc.) to contract out of the Act's provisions. However, to make the prenup valid and legally binding, it must meet the following requirements:
- It must be in writing, and
- Before signing it, both parties must have received independent legal advice, and
- The signatures need to be certified by a lawyer, and
- The lawyer must certify they have explained the implications of the agreement.
Who needs a Prenup, and are they popular in New Zealand?
Prenups are becoming more common and can benefit anyone who would fall under the Property (Relationships) Act by way of being in a qualifying relationship for more than three years. This means that any property acquired during your relationship can be excluded from falling under the Property (Relationships) Act, meaning it won't be divided 50:50 as the law requires.
Prenups are not just for people getting married – they apply to de facto relationships equally.
There is a misconception that only wealthy people need prenups, but this is not the case. Reasons everyday couples enter into prenups include:
Important: If you don't make a prenup, the Property (Relationships) Act splits the assets you've acquired during your relationship 50:50.
Prenups are not just for people getting married – they apply to de facto relationships equally.
There is a misconception that only wealthy people need prenups, but this is not the case. Reasons everyday couples enter into prenups include:
- Standard legal protection: One or both parties believe their relationship will be long-term and want to protect their respective property if it doesn't work out.
- Second marriage: Someone is marrying again and wants to limit any loss of assets should things go wrong.
- To protect children from previous relationships: Blended families can be complicated, but a prenup lets one or both parties specify what happens to their property when they die while providing for the surviving partner. Without a prenup, the surviving partner may claim a significant portion of the deceased partner's property, leaving much less for the children.
- To clarify financial rights: A couple, regardless of their wealth, may wish to legally agree their rights and responsibilities during their relationship.
- Minimise disputes if there is a separation: Prenups can clearly outline how property is divided upon the relationship ending.
Important: If you don't make a prenup, the Property (Relationships) Act splits the assets you've acquired during your relationship 50:50.
Inheritance and Relationship Property Law
Inheritance is often a significant gift left by a relative or friend, aimed to personally benefit the recipient. Inheritance is rarely intended to benefit the recipient's partner, but many New Zealanders unknowingly mix up their inheritance into the relationship property with well-intentioned but careless decisions.
Inheritance falls outside of relationship property (if you follow the rules)
If you are a beneficiary of a will, the gift you receive is automatically separate property by law. It's not relationship property, which means your spouse or partner can't claim half of it if your relationship ends. Inheritance sits outside of the Property (Relationships) Act.
You should be careful to keep the inheritance separate from your relationship property. If you mix them, the inheritance can lose its 'separate character' and become part of the relationship property. Examples include:
For example, if you had a sum of money you inherit paid into your joint account and you spend it renovating a property you jointly own, that money becomes relationship property.
The best approach to protect your inheritance from becoming intertwined with your relationship property is to do the following:
If you're in any doubt about what to do, talk to a lawyer. The law protects your inheritance from outside parties, including loved ones, but you have to follow the law to uphold your rights.
Inheritance falls outside of relationship property (if you follow the rules)
If you are a beneficiary of a will, the gift you receive is automatically separate property by law. It's not relationship property, which means your spouse or partner can't claim half of it if your relationship ends. Inheritance sits outside of the Property (Relationships) Act.
You should be careful to keep the inheritance separate from your relationship property. If you mix them, the inheritance can lose its 'separate character' and become part of the relationship property. Examples include:
- Asking for the executor of the will to pay your inheritance money into your joint bank account
- Using your inheritance to reduce the size (or pay off) the mortgage for a shared asset
- Using your inheritance to clear personal debts in both of your names
For example, if you had a sum of money you inherit paid into your joint account and you spend it renovating a property you jointly own, that money becomes relationship property.
The best approach to protect your inheritance from becoming intertwined with your relationship property is to do the following:
- Open a bank account in your name to keep your inheritance separate. You can even name the bank account or savings account 'inheritance' so you know the money is yours.
- If you're receiving investments, you can transfer them into a broker account in your name (or set one up if needed).
- If you decide to use your inheritance to pay off relationship debt, such as a mortgage or credit card, you can do this by loaning the amount to your 'relationship property'. You must record this as a loan and have your partner sign off on it legally - it's best to talk to a lawyer to ensure you're protected. Should your relationship break down, the loan will be repaid from your joint assets.
- If your inheritance is received overseas, you can either leave it in the source country or bring some or all of it over to New Zealand. To protect it from becoming part of your relationship property, the same precautions apply – keeping it 100% separate is the best way to avoid any complications.
If you're in any doubt about what to do, talk to a lawyer. The law protects your inheritance from outside parties, including loved ones, but you have to follow the law to uphold your rights.
Our guide to Prenups, thanks to our friends at Agreeable
|
|
Pre-Relationship Residential and Investment Property vs Relationship Property Laws
People who already own their home and/or an investment property are often concerned about their assets, should a current or future relationship end. To bring clarity to the situation, we've outlined the law and its effect on pre-relationship residential and rental property.
I own my house, and my partner will move in – is the house' Relationship Property' under the law?
- Yes, Relationship Property includes the family home, regardless of who paid for it or when it was acquired.
- However, the law only applies to the house if you've lived with your partner or spouse for over three years.
- This means that if you currently own a house and (later) your partner comes to live with you, they can claim 50% of the equity in the property after three years.
- To avoid this situation, you'll need to sign a prenup. You can agree to keep your property separate, or something proportional to the time you spend together (i.e. 10% every year, up to 50%).
- What you agree is between you and your partner. However, you'll need to both arrange independent legal advice.
Is an investment property, acquired before the relationship started considered relationship property after three years of living together?
Per this guide, investment properties are not relationship property under the Property (Relationships) Act, if an investment property was acquired:
If the above conditions are met, the investment property is the separate property of the owner partner. If the relationship later ends, the owner partner may retain full ownership of the property. However, the non-owner partner may, in some rare circumstances, still have a claim against any capital gain on the investment property. Given New Zealand house price increases, this amount can be significant. If you have any doubts, we suggest speaking to a lawyer.
- Before the relationship started (and not in contemplation of the relationship); or
- With separate property (such as inheritance funds or with funds distributed from a trust)
If the above conditions are met, the investment property is the separate property of the owner partner. If the relationship later ends, the owner partner may retain full ownership of the property. However, the non-owner partner may, in some rare circumstances, still have a claim against any capital gain on the investment property. Given New Zealand house price increases, this amount can be significant. If you have any doubts, we suggest speaking to a lawyer.
How to Bring Up the Delicate Topic of Prenups
Bringing up the topic of prenups isn't straightforward. The best way to broach the subject is to start with "my lawyer said we should consider a prenup, and I told him/her we'd talk about it". The earlier you start the conversation, the less emotional pressure there is.
However, you can't talk about something without giving it context. To help make it a 'natural' conversation, the underlying theme has to be protecting each other no matter what happens. You'll need to decide the terms together. Like a will, a prenup is part of estate planning. If you're still unsure, keep in mind the advantages a prenup has, especially if you already have children. A prenup doesn't mean your relationship has an end date; to the contrary, it gives you both a lot of legal rights and certainty.
To help you get a result that works for both of you, you'll both need to be completely honest about what you want. You'll also need to explain, in detail, why something is important to you, so it doesn't become a problem. The more honest you are with each other, the better the conversation will go. You'll also need to listen to your partner's concerns and be willing to compromise when disagreements come up.
Most importantly, the prenup needs to allow for a change in circumstances over time. For example, you may have children which means someone will have to take time off work, and/or you may start a business that involves both of you. The possibility of these things needs to be allowed for. Talking to your lawyer about how to do this is a good starting point.
However, you can't talk about something without giving it context. To help make it a 'natural' conversation, the underlying theme has to be protecting each other no matter what happens. You'll need to decide the terms together. Like a will, a prenup is part of estate planning. If you're still unsure, keep in mind the advantages a prenup has, especially if you already have children. A prenup doesn't mean your relationship has an end date; to the contrary, it gives you both a lot of legal rights and certainty.
To help you get a result that works for both of you, you'll both need to be completely honest about what you want. You'll also need to explain, in detail, why something is important to you, so it doesn't become a problem. The more honest you are with each other, the better the conversation will go. You'll also need to listen to your partner's concerns and be willing to compromise when disagreements come up.
Most importantly, the prenup needs to allow for a change in circumstances over time. For example, you may have children which means someone will have to take time off work, and/or you may start a business that involves both of you. The possibility of these things needs to be allowed for. Talking to your lawyer about how to do this is a good starting point.
Prenups and Inheritance – Must-Know Facts and Frequently Asked Questions
Inheritance and its effect on relationship property are laws not well understood. The good news is that unless you mix inheritance with your joint assets, it sits outside any division under the Property (Relationships) Act. For this reason, you don't need a prenup if you want to protect an inheritance from being shared in the event of a breakup. However, if you mix any of it with your joint assets, it can get complicated as we explain below.
|
What are the basic foundations for a prenup to be fair and reliable (and valid should a relationship end?)To make a valid prenup, your document should have three key considerations:
|
|
If I get a prenup, will it protect my assets should I separate from my partner?In most cases, yes. Signing a prenup contracts you out of the Property (Relationships) Act meaning what's in the prenup you signed becomes the law for your separation.
|
|
Does a family trust offer the same protection as a prenup?No – having relationship property in a trust may not protect it from being classified as relationship property should you separate. If you operate a family business, a trust may not provide the protection you wish to have.
This guidance note outlines further considerations for anyone with an existing trust. Beyond a family business, houses are often the next biggest asset for a couple. If you or your partner transfer the family home into your own family trust whereby the other partner is not a beneficiary, this is likely to create disparity. In such a situation, the courts will almost certainty 'trust bust' unless sufficient consideration (i.e. money) has been given in exchange. For all trust matters, it's best to speak to a lawyer who can advise on your specific needs. |
|
Can a court set aside a prenup?It can, but it is rare, only occurring when the prenup would cause a 'serious injustice'. Given prenups need to be explained and witnessed by a lawyer; there's a very low risk of courts challenging a prenup given the work that goes into preparing one.
|
|
When can a prenup be made?Any time is acceptable. It can be upon entering a relationship, during it (i.e. a post-nuptial agreement), or BEFORE it ends. However, a prenup is best made before the relationship or marriage lasts three years. After three years, the Property (Relationships) Act applies and entitlements change. For simplicity, getting a prenup organised as soon as possible is likely to reduce complications.
Can I sign a prenup after 3 years of relationship? Yes - you can contract out of the law at any time as long as your relationship has not ended. |
|
Do I need a prenup if I don't have any assets?It depends on your future plans and intentions. If you've just started a business, it may not be worth much now, but using a prenup to exclude it from relationship property will protect you later on from having to sell it in the event of your relationship breaking down. If you have any doubts or are unsure about what to do, it's best to speak to a lawyer.
|
|
Is an overseas prenup valid in New Zealand?Usually, yes, but it does depend on several circumstances. This guide explains the legal requirements in detail, and it's often best practice to contact a lawyer who can review your circumstances.
|
|
How much does a prenup cost?A general estimate is around $1,000 to $1,500 per side. Each party needs their own lawyer to avoid any claim of duress/pressure being applied.
|
|
My partner is moving into the house I own – do I need a prenup, or is my house outside' relationship property'?Once you live with someone for over three years, the existing property becomes relationship property, regardless of who paid for it or whose name it is in. This is a major reason as to why people consider signing a prenup.
|
|
Can I write and sign a DIY prenup?Yes, but it's not recommended and you'll need a lawyer to witness the prenup signing. Prenups need a lot of consideration, and a DIY approach can expose either of you to legal challenges should your relationship end. The best starting point is to talk to your partner and a lawyer to avoid an expensive separation. A DIY prenup may be rejected by the court, meaning you're liable for a standard 50:50 split.
|
Our guide to Prenups, thanks to our friends at Agreeable
|
|
Related resources:
