Often, a Contracting Out Agreement is entered into so that a person’s assets are not subject to a 50/50 division under the Property (Relationships) Act 1976 (Act) in the instance they were to separate, or upon the death of either party.

 

This arrangement may work for both parties if they are already in a similar financial position, or are bringing assets or income of an equal or similar value into the relationship, yet they wish to remain independent in the future.

 

However, it is often the case that one party is in a better financial position, and/or in possession of more assets than the other, and they therefore wish to enter into a Contracting Out Agreement in order to protect any assets they owned before entering into the relationship, as well as any acquired during the relationship.

 

Regardless of the situation, it is a requirement under the Act that for a Contracting Out Agreement to be legally binding, both parties must obtain independent legal advice as to the effects and implications of the agreement before signing it.

 

Although you may feel as though you do not need to seek independent legal advice on the Contracting Out Agreement that your partner and their lawyer have drafted, it is important that you do receive independent advice. This is so that another lawyer can talk you through the agreement and ensure that you understand the implications of the agreement before you enter into it. When you get independent legal advice, you are working with a lawyer who is looking over the agreement as your advocate, and ensuring that what is detailed in the agreement is in your best interests.

 

Often at the beginning of a relationship, keeping your assets and income as separate properties may not be much cause for concern. For example, if you reside in a house with your partner that your partner owns, and their income also remains separate from any relationship property, you may not deem this as being unfair as you are each maintaining what you have brought into the relationship. However, as we often see, in the long term this can raise potential issues. If you were to become financially dependent on your partner in the future, whether you lost your job or gave up a career to raise a family, upon separation or death of your partner, you may end up in a financially disadvantaged position. In these situations, the Act provides a means for the financially disadvantaged party to receive compensation. However, a contracting out agreement typically waives your right to claim such compensation under the PRA.

 

Contracting out agreements will also typically include a Review Clause, in which the parties agree to review the terms of the agreement after a certain period of time to ensure that the agreement is still fair to both parties. Any amendments to the terms of the agreement can only be implemented if both parties agree. This is why it is important that you get independent advice to ensure the agreement is fair to begin with.

 

If the terms of the agreement become seriously unjust to you, you can apply to the Court to invalidate the agreement under the Act. This is a costly process, however, and you must be able to prove your case.

 

Receiving independent legal advice is essential, not just because it is a requirement under the Property (Relationships) Act, but because it is important that you are fully informed about the terms of the agreement before you sign it. Having an independent lawyer review the agreement allows you to negotiate the terms of the agreement to cater for any changes or developments of the relationship in the future, and ensures that the agreement remains fair for both parties in the long term.

 

If you need a contracting out agreement, or independent legal advice for one, contact us today!