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For many New Zealanders, entering into a committed relationship also means combining financial lives. However, not everyone intends for all assets and wealth to be treated equally if the relationship later comes to an end. A Section 21 Agreement provides couples with the ability to make their own arrangements about property ownership and division, rather than relying on the default rules set out in law.
What Is a Section 21 Agreement?
Section 21 Agreements allow couples to decide in advance how their property will be owned, managed, and divided.
Over recent years, these agreements have become increasingly common. Many people are entering relationships later in life, bringing with them existing assets, family trusts, businesses, inheritances, investment portfolios, or children from previous relationships. As a result, there is a growing desire to create certainty and protect property interests before disputes arise.
Understanding the Property (Relationships) Act 1976
The Property (Relationships) Act 1976 governs how property is divided when certain relationships come to an end. The legislation generally applies to:
- Married couples
- Civil union partners; and
- De facto partners
Under the Act, the starting point is that relationship property is shared equally between partners when the relationship ends.
Relationship property commonly includes:
- The family home
- Family chattels
- Income earned during the relationship
- Assets acquired by either partner during the relationship
- Increases in value attributable to relationship efforts
While the equal-sharing regime enshrined in the Act is intended to promote fairness, it may not reflect the circumstances or intentions of every couple. Recognising this, the law allows partners to make alternative arrangements through a Section 21 Agreement.
Who Can Enter Into a Section 21 Agreement?
The legislation permits a wide range of people to enter into a contracting out agreement. This includes:
- Married couples
- Civil union partners
- De facto partners
- Couples intending to enter into a marriage
- Couples intending to enter into a civil union
- Couples planning to begin a de facto relationship
In practical terms, an agreement can be signed before a relationship formally begins, during the relationship, or after major assets have already been acquired.
What Can a Section 21 Agreement Cover?
A carefully drafted agreement can address many aspects of a couple’s financial arrangements, including:
- Ownership of Property
- Parties can specify which assets remain the separate property of one partner and which assets will be treated as relationship property.
- Division of Assets Upon Separation
- The agreement can set out how property will be divided if the relationship ends, reducing uncertainty and the potential for costly disputes.
- Arrangements Following Death
- The parties may also agree on how certain property interests will be dealt with upon the death of one partner, helping to align relationship property arrangements with estate planning objectives.
Why Consider a Contracting Out Agreement?
Every relationship is different, and so are the financial circumstances of the people involved.
A Section 21 Agreement may be particularly beneficial where:
- One party owns substantial assets before the relationship begins
- A family business requires protection
- An inheritance or family wealth is expected
- One party has significantly greater assets than the other
- There are children from previous relationships
- The parties simply want certainty and transparency about their financial future
Having a clear agreement in place can help reduce the risk of disputes and provide both parties with a better understanding of their rights and obligations.
When Is a Section 21 Agreement Legally Valid?
The Act imposes strict requirements for these agreements. Compliance is essential because an agreement that does not meet the statutory requirements may be unenforceable.
There are four key requirements.
- The Agreement Must Be in Writing
A verbal understanding between partners is not sufficient. For a contracting out agreement to have legal effect, it must be recorded in a written document.
- Both Parties Must Sign
The agreement must be signed by each party. While electronic signing may be possible in some circumstances, traditional signed documents often provide greater certainty and minimise disputes about execution.
- Each Party Must Receive Independent Legal Advice
This is one of the most important safeguards in the legislation.
Each person must receive their own legal advice from a separate lawyer before signing the agreement. The purpose of this requirement is to ensure that both parties fully understand:
- Their legal rights under the Property (Relationships) Act
- The effect of the proposed agreement
- The advantages and disadvantages of entering into it
Lawyers acting for each party should be entirely independent. In most cases, the lawyers cannot practise within the same firm.
- The Lawyers Must Provide a Certificate
Before the agreement is signed, each lawyer must certify that they have explained the nature and consequences of the agreement to their client.
These certificates form a critical part of the validity requirements and confirm that the parties entered into the agreement with an informed understanding of its effects.
The Importance of Getting It Right
Relationship property agreements are powerful legal tools, but they must be prepared carefully. Errors in drafting, failures to follow the statutory requirements, or inadequate legal advice can place the enforceability of the agreement at risk.
Obtaining experienced legal advice at an early stage can help ensure that the agreement accurately reflects the parties’ intentions and stands up to scrutiny if it is ever challenged.
Need Advice on a Section 21 Agreement?
Whether you are seeking to protect existing assets, preserve family wealth, or simply create greater certainty in your relationship, a properly prepared Section 21 Agreement can provide significant peace of mind.
Our experienced lawyers can advise on the preparation, review, and negotiation of contracting out agreements tailored to your circumstances. Contact our team to discuss how we can help protect your interests.
Article written by Vanshika Singh
