All about prenups…and other financial agreements
What exactly is a pre-nup?
Australian couples can plan for their future rights (and responsibilities) with a binding financial agreement. Once something is binding it is difficult, although not impossible, to change or overturn it.
A financial agreement is basically a contract which you and your partner make. If you are in a de facto relationship, you can make it at the beginning of your relationship or at any time during the relationship.
Marrying couples use to call these agreements “pre-nups” because they were made before the start of a marriage. These days both soon to be married, married and de facto couples can make theses agreements at any time in their relationship that suits them.
These agreements take into consideration a range of issues outlined in the Family Law Act like:
How in the event of a relationship breakdown, all or any of the property or financial resources of either or both of the parties is to be dealt with.
The maintenance of either party during the relationship and/or after dissolution of the marriage or the end of a de facto relationship.
Any incidental, ancillary or other matters to those above.
Cohabitation agreements or de facto agreements, that confirm a person’s non-financial and financial rights when the de facto relationship comes to an end, are also recognised.
How do you create a Pre-nup or binding financial agreement?
♦ You cannot get the same lawyer to act for both of you with financial agreements.
♦ You will each need your own lawyers to give legal advice about the effect of any potential agreement on your future rights (particularly in any future property settlement if your marriage or relationship breaks down) and about any disadvantages in making such an agreement.
♦ The agreement won’t be valid if you don’t get this advice.
♦ Either before or after signing the agreement, each party is to be provided with a signed statement by the legal practitioner stating that the advice was provided to that party.
♦ A copy of that statement is then given to your partner or their lawyer.
♦ Both of your lawyers will need to take detailed instructions about your financial circumstances, future intentions (eg regarding children), contributions already made to the property, estate planning requirements (eg protection of children from other relationships) and the financial agreement you both wish to enter. In disclosing all of your assets and liabilities, valuations are normally obtained and accountants are often used to make sure things add up
♦ Your lawyers must provide each of you with a detailed letter of advice, so you understand what such an agreement means and that it is binding.
♦ The agreement is then drawn and negotiated between the two of you to iron out any concerns.
When settled, the agreement is signed by the parties.
Good agreements mean preparation, preparation, preparation
Both Before you can make your agreement, your lawyer will need detailed information about:
♥ Your assets, liabilities, businesses, trusts, superannuation/pension entitlements etc (and you need to be honest and not hide or leave out details) by providing statements and valuations. Where this isn’t possible it’s important to give a fair estimate of the value of any other things.
♥ Details of your employer, salary and entitlements. It is important to provide tax returns to prove this.
♥ Your personal details (including your previous marital status, details of any children).
♥ You and your future spouse or partner’s intentions about the division of your property if you separate. It’s also sensible for any agreement to provide an additional settlement for any financially disadvantaged party. (eg. the partner who may have no income)
It is simple common sense if you want a strong financial agreement to avoid being mean spirited. Make reasonable provision for your partner if you have greater wealth by sitting down and negotiating this with them. Each of you should also assess what’s offered with your lawyer so you can have a non-emotional mind overseeing any negotiations.
But doesn’t it take the romance out of the relationship?
While this may seem unromantic, making a financial agreement promotes trust, certainty and transparency about financial matters between both of you. It can actually be part of a plan for a successful marriage or de facto relationship. The agreement provides a reference point for both of you and reduces the chance of disputes arising about financial matters during the relationship.
Many couples consider that this sort of agreement gives them real peace of mind by clearing the air over what can sometimes be a sensitive topic to discuss.
Financial agreements often require much research, detail, checking and confirming and reconfirming with each party, so they are not easy things to construct. Make sure you both find lawyers with skills in this area and ensure you leave enough time to get the agreement drawn up and agreed to. One lawyer in this field has advised that they can start at $5000, and if they’re really complex agreements, it could be more than twice that.
Also, if you’re getting married, it’s best to start the process at least 6 weeks before the wedding. For de facto couples, you should get your financial agreement done as early as possible.
Financial agreements can be changed as your relationship changes
Think of your financial agreement as an evolving document. It may begin as a ‘pre-nup’ but it can be changed and updated if the dynamics change. Good examples are if you have children, or if either or both of you become wealthier. Changes in circumstances such as hard times or sickness may require the agreement to be revised.
Talk to your lawyers about having a revision clause in your agreement so that from time to time you can review and change it to more suit your circumstances. It’s important that the agreement remains fair and reasonable.
Can a pre-nup or financial agreement be overturned?
You cannot be provided with a cast-iron guarantee that your agreement, once entered, will not be subsequently set aside by the Family Court.
The only way a court can make orders for property settlement and spousal maintenance despite an agreement is if the court sets aside the agreement. The law has a number of grounds to set aside an agreement.
The main grounds are:
♦ An agreement was obtained by fraud. For example, one spouse fails to disclose a matter material to the agreement such as ownership of assets / businesses.
♦ One or both of you entered into the agreement for the purpose of defrauding or defeating a creditor of either of you. This means that you can’t use a binding agreement to divert assets away from creditors, or a trustee in bankruptcy.
♦ The agreement is void, voidable or unenforceable. For example, the requirements for a binding agreement were not fulfilled and these are complicated which is why you both should consult with a lawyer to get everything right in the eyes of the law.
♦ Since the agreement was made, a material change in circumstances that relate to the care, welfare and development of a child of the marriage has occurred. As a result of the change, the person who has caring responsibility for that child, will suffer hardship if the agreement is not set aside.
♦ The agreement was signed because of pressure, harassment or some other form of unfair conduct (eg ‘gunshot signings’ of an agreement on your wedding day).
Future changes to the law about financial agreements
Financial agreements are out-of-court, private agreements between the two of you outlining how property and other financial matters will be dealt with in the event of the breakdown of a marriage or de facto relationship. It’s always disappointing when Courts get involved due to uncertainty. The downside of this is delays and added cost for both parties.
There is a Bill before the Parliament that will hopefully resolve uncertainties around requirements for entering into, interpreting and enforcing agreements. This new law aims to introduce a statement of principles to outline the binding nature of these agreements to offer certainty to parties.
These measures are intended to ensure that prospective, current or former parties to a marriage, or a de facto relationship, can take responsibility for resolving their financial and maintenance matters with certainty and without involving a court.
The Legal Eagle will keep you updated on whether this new bill passes and becomes law.