Contracting Out Agreements are becoming a lot more common. Whether this is because people are getting into relationships at a later age and therefore have more assets, or they are less trusting of their partners, or they are pressured by parents who intend to leave them a sizeable inheritance, the truth is, contracting out agreements are becoming the bread and butter of Family Law.

Is a contracting out agreement another name for a pre-nup?

A pre-nup is not a term often used to describe this agreement these days. Pre-nuptials would suggest that this contract could only be made prior to marriage. That is not the case. A contracting out agreement can be drafted at any stage during a relationship and can be applied to couples in a civil union or defacto relationship, as well as marriage. Therefore the term “pre-nup” has become an outdated, misrepresentative term, although yes, still a form of a contracting out agreement.

What are you “contracting out” of?

Essentially the Property (Relationships) Act 1976 (the Act) governs the distribution of relationship property when a couple separates and this would generally be split equally between them. However, the Act allows couples to “contract out” of this regime and draft an agreement which better reflects the status of their assets and how they wish them to be dealt with if they separate. Significantly this gives a person the ability to protect the assets that they come into the relationship with. So if you start a new relationship and are concerned about what will happen to your property, inheritance, Trust, Ferrari or crown jewels when you separate, you can ring-fence these items and label them as separate property, despite how you use that property during the relationship. If these items are not specified in a contracting out agreement then there is the potential they may fall into the relationship property pool.

I live with my partner but we are not married…does this apply to me?

The number of couples in defacto relationships is rising. Many people make the mistake of assuming their property is safe because they haven’t married or fully committed to their partner, they just “live together”. The leading point to determine whether two people are a defacto couple under the Act (and therefore liable to divide their property equally upon separation or death) is whether they were living together as a couple and if so, for what duration. The Act has many factors it considers relevant to whether two people are living together as a couple (finances, sexual relationship, children, household duties, how you present to the world, the list goes on) however the classification of duration is simpler. Three years. If you have been living together as a couple, whether married, civil union or defacto for three years, your property is “relationship property” and therefore the starting position is equal division. It is important to note that if you have a child within those three years then your property becomes relationship property from the date your baby is born. Unless, of course, you have a contracting out agreement that specifies otherwise.

Independent advice is a legal requirement for these contracts. Each party must be fully advised independently and specifically as to the consequences of the agreement. Every situation is different and each case is personal to the individual parties so if you would like to explore this topic further then we suggest you consult your lawyer for how the Act may apply to your circumstances.