A perceived problem arises more often where one partner has already accumulated significant wealth before they hitch themselves to the joint cart. It also arises on a second relationship, which is where I see the demand in New Zealand: a house, a business, or children from the first marriage, and a partner determined not to be halved again. There is no register of pre-nups or of contracting-out agreements, so the increasing use of written agreements cannot be counted. The use of pre-nups is likely to become more common.
A pre-nup, here, is a contracting-out agreement under the Property (Relationships) Act 1976. The act covers marriages, civil unions and de facto relationships, same-sex and opposite-sex alike. Live together for three years and the equal-sharing rules will arrive, because that is when the act bites. The family home and family chattels are then shared, whenever and however they were paid for.
To displace that, the agreement must be signed in front of a lawyer, each party with their own. The lawyer certifies that the effects and implications were explained: what this document does, set against what the act would do if you did not sign. The formality is deliberate. You are making a bargain with someone you are usually in love with and sleeping with. Your lawyer should also tell you whether it is wise. Plenty of people are told by their lawyers not to sign and sign anyway. They are perfectly entitled to. As long as they know the implications, that is their choice, and their responsibility, as adults leading their own lives. A lawyer is not a nanny.
A court has a discretion under the act whether to enforce the agreement, within certain criteria. An agreement may fail because it did not do what you thought it would. It may fail because the finances were run in a way the document does not cover. Property you were certain would stay separate is classified as relationship property, and the pre-nup has nothing to say about the life you actually lived.
These are still contracts. They can be undone for misrepresentation, duress, undue influence, a failure to disclose. Section 21J of the Property (Relationships) Act adds a ground commercial contracts do not have. A court may set the agreement aside if giving effect to it would cause serious injustice, at the time it was signed or by the time it is enforced. Draft it too extremely and it will not survive.
In 2001, Parliament raised the old test of injustice, under which the courts could set agreements aside, to the much higher hurdle of serious injustice, and told the courts to weigh, in any decision to overturn an agreement, the parties’ wish for certainty. In Harrison v Harrison, the Court of Appeal took that seriously. Parties, it said, must be free to contract out of an act with so much impact on personal wealth and fairness is not measured by asking what the act would have done. The pressure of being told there will be no marriage without a pre-nup is not, of itself, enough. How many times have I seen that document a fortnight out, the invitations already gone. Harrison is clear you need more than wedding-week remorse. If you sign, with your eyes open and a lawyer at your elbow, you will usually be held to it.
The statements of the Court of Appeal in Harrison seem pretty straightforward. Why, then, so much uncertainty about the ability to contract out? Because whether an agreement is upheld is a discretion under the act. Lower-court judges are also notorious for not actually following what a senior court has said. There are basically two philosophies of judging. One is that you are there to do justice in the particular case and that is what you do. The other is that you are there to apply the law, and that is what you must do, regardless of the outcome. You see that conflict in this area, in the different results when section 21J agreements are challenged. So don’t assume a judge will act like your nanny either.
The time to negotiate these agreements is before you live together, before either of you has accrued rights and before those three years bring the equal-sharing rules down on the family home. The further in you are, the harder it becomes emotionally, and negotiation, and later renegotiation, can be very destructive of a relationship.
The same warning applies to trusts, which is what many of these agreements are really trying to protect. Trust assets can be reached under the Property (Relationships) Act, under trust law, and under section 182 of the Family Proceedings Act, which allows the court to vary a trust associated with the marriage, on divorce. Section 182 does not apply to a de facto relationship. Any agreement needs to be reviewed and you need to keep an eye on the evolving law.
So is all this effort worth it? If you want to keep property separate, the best certainty and structure lawyers can currently offer is, for most people, still (incredibly) a trust to hold that property, and a properly drafted pre-nup contracting out of any entitlement to the trust and to any separate property assets outside the trust.
That does not mean it will always stick. The other course is to try and keep separate property separate under the act, without an agreement: a trust which is not associated with your marriage (which can be difficult to achieve given the broadness of the legal test), and a discipline, every time you buy or improve something with your separate property, of not letting the other partner contribute, directly or indirectly.
It is harder than it sounds, and often requires yet more legal advice, as you buy and sell assets, to understand the legal impact of the structures. It is remarkable how many people cannot hold the line.
Operating a relationship like this is hard on the emotional connection: the constant contact with lawyers, the policing of who paid for what, particularly where the relationship is very unequal financially.
These are complicated contracts, asked to govern a future neither of you can see. Rather like a marriage vow.
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