Contracting Out Agreements and Wills: lessons from Rimmer v Wilton
A recent New Zealand Supreme Court decision Rimmer v Wilton has highlighted an important lesson for spouses or partners who have entered into a Contracting Out Agreement: a couple’s Contracting Out Agreement may affect what a surviving partner receives if their partner dies without a Will and, override their entitlements under intestacy rules, leaving them with no claim to the deceased partner’s estate.
What is a Contracting Out Agreement?
Contracting Out Agreements, commonly referred to as a prenup, is a legally binding agreement between two spouses or partners, under the Property (Relationships) Act 1976 (PRA). The Agreement sets out the party’s agreed division of property in the event of separation, or death of one, or both, of them.
If you have a Contracting Out Agreement with your partner, it has never been more important to make sure your Wills are current and consistent with your Contracting Out Agreement, to ensure the surviving partner, and other beneficiaries, receive what you intended, in the event of death.
The decision
Prior to this landmark decision from the Supreme Court, in New Zealand, it was generally accepted that a surviving partner could potentially receive property under their Contracting Out Agreement, as well as inherit from their deceased partner's estate, either under a Will or, where there was no Will, under intestacy laws.
The Supreme Court has now clarified that this is not necessarily the case.
Rimmer v Wilton has now established that when a partner dies without a valid Will in place (died intestate), the surviving partner may not receive property from the deceased’s estate under intestacy rules, if they agreed not to in their Contracting Out Agreement.
In Rimmer v Wilton this meant that despite a 30 year long relationship, Ms Wilton was only entitled to claim her share of the couple’s home, and a life interest in Mr Rimmer’s share, which was provided for her under their Contracting Out Agreement. While Mr Rimmer’s share in the home, and any other property, passed to his children.
What does this mean for you?
The decision highlights several important lessons:
A Contracting Out Agreement has implications beyond separation:
It is a common misconception that Contracting Out Agreements are only applicable when a couple breaks-up, however this is not the case at all.
Contracting Out Agreements are prepared to account for a relationship ending either by separation, or death. Rimmer v Wilton is an important reminder of just how significant the Agreement may be when one partner dies.
The takeaway: When preparing a Contracting Out Agreement, couples should carefully consider the terms of the Agreement from both perspectives — “what happens if we separate, and what happens if one, or both, partners die?”
Contracting Out Agreements do not replace a Will:
In this case, Mr Rimmer died without a Will. If he had made one and left his share of the property to Ms Wilton, the final outcome for Ms Wilton may have been very different.
The case is a useful reminder that a Contracting Out Agreement should not be viewed as a substitute for a Will. Both documents should be carefully considered as part of an overall estate and relationship property plan.
Your Wills and Contracting Out Agreement should be consistent with each other, and be reviewed together:
Having a Will is important but ensuring that it is consistent with the terms of your Contracting Out Agreement, is just as important too.
The two documents need to work together, if they are not consistent, the surviving partner, or other beneficiaries, of a deceased-person’s estate may receive something quite different from what each partner intended.
The law in this area remains complex:
The Supreme Court acknowledged that the interaction between the Property (Relationships) Act 1976 and succession law in New Zealand is not straightforward. The Court also supported the Law Commission's view that legislative reform is required in this area.
No changes have been made to New Zealand’s relationship property legislation, or succession law, yet. Until any changes are made, it is important you and your partner/ spouse seek expert advice to ensure your Contracting out Agreement and Wills uphold the estate plan you both intend.
Is it time to review your documents?
If you have a Contracting Out Agreement, take the opportunity to check whether your Will still reflects your wishes and whether the two documents are consistent – If you are unsure whether this is the case, contact us and we can review the documents for you.
A review of your documents is particularly worthwhile if your circumstances have changed — for example, if you have entered a new relationship, had children, acquired significant assets, or experienced another major life event.
Taking the time to review your legal documents now can help ensure that your wishes are properly reflected and reduce the risk of an unintended outcome in the future.
Reach out to our experienced Relationship Property and Estates team for advice on your Contracting Out Agreement and Wills.