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Contracting Out Agreement vs Separation Agreement

March 2021

The most significant difference between a contracting out agreement (“COA”) and a separation agreement (“RPA”) is that one is entered into during the relationship and the other at the end of a relationship. The definition and status of a relationship as a marriage, de-facto relationship or civil union, under the Property (Relationships) Act 1976 (“the Act”) is essential in assessing what each party may want, what each party may need and what the Act provides to achieve those ends. In the case of a marriage or de facto relationship or Civil Union which has lasted longer than three years, there is a presumption of equal sharing of all relationship property.

Essentially, a COA commonly known as a ‘pre-nup’, is often (but not always) entered into at the start of a relationship. Couples enter into the COA to define each person’s property and what would happen to that property if the relationship were to end. On the other hand, an RPA is entered into once a relationship has ended, when the parties wish to distribute the relationship assets between them 

Contracting Out Agreement

A COA is used to contract out of some or all of the principles under the Act. It provides couples with the autonomy to decide how to split their assets if the relationship ends. Even if in the eyes of the law such a split may not be deemed as ‘equal’, the couples can contract out of those rights under a COA. 

A COA is often seen in the case where one party enters the relationship holding significantly greater assets/wealth earned as their separate property or by an inheritance, which they wish to protect and keep separate in the event of separation. A COA is becoming more common with people who are in “later in life” relationships and have acquired separate assets before the relationship, although those who are beneficiaries of family trusts or are likely to have a significant inheritance should also enter into such agreements.

In order for a COA to be binding and enforceable, it must be signed by each of the parties, be witnessed by independent lawyers and certified by those lawyers after each lawyer has given full advice on the effects and implications of the COA. The Court has the power to declare a COA void if there is serious injustice or the procedural requirements contained in the Act have not been followed, however notwithstanding this, a COA is the best way to protect existing assets at the beginning of a relationship. 

Relationship Property (Separation) Agreement

If a relationship comes to an end (without there having been a COA signed in accordance with the Act) then the principles of the Act govern the split of those assets. 

When couples separate from each other they have flexibility in how their relationship property is divided subject to them both agreeing and their respective lawyers certifying such arrangements. Similar to a COA, the couple is able to effectively contract out of the Act’s general principles of equal division and negotiate the distribution of assets as they jointly agree. It is not uncommon with RPA’s for an unequal division particularly where there may be an asset that may be of questionable value (such as a business) or where the party who is going to have the primary care of the children may retain a greater proportion of the furniture and chattels.

Similar to the COA, the requirements on both parties to receive full disclosure of all assets and legal advice as to the implications of the RPA is vital. 

Conclusion

If you wish to discuss either of these types of agreements, or to discuss any aspect of relationship property, you should contact us at as earlier stage as possible to obtain full legal advice as to your options.