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Difference between Contracting Out & Relationship Property Agreements

The primary and distinctive difference
between contracting out and
relationship property agreements
relates to the timing and status of a
relationship between two parties. 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
important in assessing a contracting out agreement
(“COA”) or relationship property agreement’s
(“RPA”) influence.
Essentially, a COA commonly known as a ”pre-nup”,
is often (but not always) entered into at the start of a
relationship, prior to the relationship being defined
under the Act as marriage, de-facto relationship or
civil union and before the couple is subject to
greater legal requirements around relationship
property division. Couples enter into the COA to
define each party’s separate property, defining what
would happen to that property if the relationship
were to end.
On the other hand, an RPA, commonly known as a
settlement agreement or separation agreement, is
entered into once a relationship has ended, whereby
the parties wish to distribute the relationship
property assets.
Contracting Out Agreement
A COA is used to contract out of the general
relationship property division principles under the
Act; with those principles providing for an equal
50/50 split of the relationship property between the
parties. 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
subsequently waive 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. The COA is essentially a
type of ‘insurance policy’ for either
party to protect their assets or
inheritance, despite every intention for
the relationship to progress.
COA’s can be binding and important
documents to review with your solicitor,
hence Part 6 of the Act requires that your signature
be witnessed by a solicitor who has certified that
they have explained the contents and implications of
the COA to you before signing. The court can
declare a COA void if they view the COA lacks the
fundamental principles of independent legal advice,
disclosure or there is evidence of some kind of
undue influence from one party to the other.
Relationship Property Agreement
In the case of a relationship separation, the Act
establishes principles which govern the split of those
assets, as mentioned above. When couples
separate from each other they may wish to have
some autonomy and choice in how the relationship
property is split. An RPA (also known as a
separation agreement) allows the parties to do this.
Similar to a COA, the couple is able to contract out
of the Act’s general principles of equal division and
negotiate the distribution of assets.
Commonly, parties wish to enter into an RPA to
define specific separate property, i.e. businesses,
trusts, houses and/or shares/investments.
Sometimes the parties wish to customise distribution
as the process of equally dividing an asset/liability
can be labour-some and disruptive or may cause
unnecessary burdens for one party, for example,
trying to sell an established business to split the
equity.
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. It is
recommended that you contact a legal professional
to discuss either agreement in detail.

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