Setting up a 'pre-nup' during your marriage

Q. My partner and I are going through a difficult period in our relationship. He seems to work every day on his construction business. Although he has multiple projects, I know it's becoming difficult to get building materials to complete the projects. The clients are also having difficulty in paying my partner in a timely way because of their own financial difficulties.

I am concerned because he is currently ordering materials from our joint funds and there is a chance these jobs could be delayed for a long time or we could be out of pocket for a long time before his client's pay invoices.

We have three young children, and we rely on him for the income. I would like to come to some sort of agreement with him where I am able to retain the family home and he keeps the construction companies if we were to separate. Is this possible? I would like to make sure that any agreement that we come to cannot be challenged in the future. What is your advice?

Answer: You and your husband are able to enter into what we call a Contracting Out Agreement.

Contracting Out Agreement (popularly known as a 'pre-nup' when it's signed before you tie the knot) is a legal agreement between you and your partner, outlining how you will divide your assets if you separate. These agreements can address trust property.

Process of obtaining a Contracting Out Agreement

To make the agreement legally binding, both you and your partner are required to receive independent legal advice. That means that you will need to see and be advised by separate lawyers prior to signing any such agreement.

Prior to giving independent legal advice, the lawyers will exchange what we call 'disclosure'. This means that you and your partner will need to disclosure your asset position with each other and the lawyers. You need to consider the status of your assets. Some of the items may be in trust property and other items may be relationship property owned by the two of you. You will need to disclose assets that you own in your personal name, have a beneficial interest in or own through a trust.

You will also need to obtain valuations of key assets as part of the disclosure process. Normally you would obtain a registered valuation of the house, or at least a desktop valuation. The company accountant may be able to help estimate the value of the construction businesses.

The valuation of a business can be a difficult one. In some cases, an independent accountant has to be instructed to assess the true value of the business.

You will also need to reach an agreement around the remaining assets. This can include items like the Kiwisavers, vehicles and other chattels. It is common for parties to ring fence personal assets like art that may been given to them by their family. The ass

Independent legal advice

The lawyers will then write to their respective clients in a letter of advice and give them advice on what the agreement means, including any risks of signing. You should meet with your lawyer a number of times before signing the Contracting Out Agreement. The whole process can take 1 to 3 months or sometimes more.

Future assets

It is always easier to reserve or ring-fence assets that are owned at the date of the agreement as opposed to assets that may be purchased at some time in the future.

There is a possibility that an agreement may be overturned if circumstances have changed materially from when the agreement was initially signed. For this reason, may people have a review clause within the agreement to review on a certain milestone or within a certain timeframe. For example, within 5 years or on the birth of the first child.

Increasingly common

The agreement you are thinking about is becoming increasingly common.

For some adults, they wish to have certainty for them in the children. For those in business, they are prepared to take risks associated with being in that business as it can sometimes come with large rewards.

This article was first published by the NZ Herald

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