For many couples, discussing what would happen to their property if they separated is hardly romantic. When a relationship is going well, planning for its possible end can feel unnecessary, pessimistic, or even a sign that one partner does not expect the relationship to last.
But a contracting-out agreement — sometimes referred to as a “pre-nup” — does not have to be a sign of distrust.
In fact, having an open and honest conversation about finances, expectations and the future of your property can be a sign of a strong and considered relationship.
Under section 21 of the Property (Relationships) Act 1976 (PRA), couples can agree how their property will be treated instead of simply relying on the default rules under the PRA.
(For more information about what a section 21 agreement is and what one can cover, see our Relationship Property Planning Guide, which is available for free download on our website.)
The law may not see your finances the way you do
Broadly speaking, the PRA provides for relationship property to be divided equally when a qualifying relationship ends.
But the way the law treats your property may not necessarily reflect the way you and your partner think about it.
Perhaps one partner owned the family home before the relationship. Maybe there is a family business, an expected inheritance, financial assistance from parents, or simply a significant difference in the assets each partner has accumulated.
This can be particularly relevant for couples entering relationships later in life or where one or both partners have already accumulated significant assets.
Without an agreement, the default rules under the PRA generally apply. A contracting-out agreement lets you and your partner decide in advance what you consider fair rather than leaving that decision until the relationship has ended.
(Our Relationship Property Planning Guide explains some of the circumstances where couples commonly consider a section 21 agreement.)
It is easier to agree while you are still together
A separation is rarely the ideal time to begin discussing what each partner believes they are entitled to.
Even an amicable separation can involve considerable stress and uncertainty. Where the separation is less amicable, disagreements about property can quickly become intertwined with the emotions surrounding the end of the relationship.
A contracting-out agreement allows those decisions to be made at a very different point in time: while you are together, communicating, and able to discuss what each of you considers fair.
Certainty now can save expense later
Relationship property disputes can become expensive very quickly.
Where former partners cannot agree about how their property should be divided, negotiations can become prolonged and, in some cases, result in court proceedings.
A contracting-out agreement cannot guarantee that a dispute will never arise. But clearly recording what you have agreed can significantly reduce the number of things left to argue about if you separate.
Spending money obtaining advice and putting an appropriate agreement in place now may avoid significantly greater expense later.
The conversation itself can be valuable
A contracting-out agreement also forces couples to have conversations about money that they might otherwise avoid.
What do we each own? What debts do we have? What happens if we buy a home together? What if one of us stops working to care for children? How should an inheritance be treated? What about money our parents contribute?
Most importantly: what do we each think is fair?
These are not just conversations about separation. They are conversations about how two people intend to organise their financial lives together.
That is why a contracting-out agreement does not have to be a prediction that the relationship will fail. It can simply record the financial expectations on which it is built.
The process is designed to make sure you both understand what you are agreeing to
There are strict legal requirements for a contracting-out agreement.
Among other things, each partner must receive independent legal advice, and the effect and implications of the agreement must be explained before it is signed.
Financial disclosure is also an important part of preparing an agreement. You cannot sensibly agree how property should be treated without first understanding what property there is.
The process therefore encourages something that should be present in any healthy relationship: transparency about money.
(For more information about disclosure, the legal requirements and what to expect when preparing an agreement, see our Relationship Property Planning Guide.)
All relationships end one way or another
A section 21 agreement can also help decide what happens to property if one partner dies.
In the recent decision of Rimmer v Wilton, the Supreme Court considered a couple who had a relationship property agreement but no will. The agreement set out what would happen to their home if one of them died. The Court upheld that arrangement, limiting what the surviving partner could claim under the usual intestacy rules.
The case is a reminder that relationship property planning is not just about separation. A relationship may end through separation or death, and a clear agreement can provide certainty in either situation.
Your section 21 agreement should be considered alongside your will and wider estate planning.
Planning for the worst does not mean expecting it
We routinely plan for events we hope will never happen.
We insure our homes without expecting them to burn down. We make wills without expecting to die tomorrow.
A contracting-out agreement can be viewed in much the same way.
Ideally, you will never need to rely on it following a separation. But if you do, having made those decisions together when the relationship was strong may make an already difficult situation considerably easier.
In that sense, a “pre-nup” does not have to say, “I don’t trust you.”
It can instead say, “I care enough about both of us to make sure we understand what we are agreeing to.”
How Blackwood Montagna can help
At Blackwood Montagna, we regularly assist clients with section 21 contracting-out agreements.
Whether you are considering putting an agreement in place or have been presented with one by your partner, we can help you understand your options and what the agreement means for you.
For a more detailed explanation of section 21 agreements, including what they can cover, when they are commonly used, the legal requirements and how to prepare, you can download and read our Relationship Property Planning Guide.
A little planning now can provide both partners with clarity about the future — protecting what you’ve built and powering what comes next, so you can focus on growing your relationship rather than what might happen if it ends.
This article is intended as a general overview and discussion of the subject dealt with and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. We will accept no responsibility for any actions taken or not taken on the basis of this article.
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