The often-unspoken subject for many couples – the prenup. What is it? How does it work? Do we need one? All valid questions few couples dare to discuss for one reason or another but usually because it can make them uncomfortable. After all, no one enters into a relationship or marriage foreshadowing or planning its demise.
But let’s visit that notion for a second, put it this way, you don’t prepare a Will while planning your death. Unfortunately, statistically speaking most relationships and marriages of longer than two years will end in separation and/or divorce. This is a statistic that has increased alarmingly since the unfortunate societal and economic downturn as a result of Covid-19. With the long-terms effects of this pandemic largely unknown, now is the best time to plan for your future.
So why enter into a prenup? To protect the assets and resources you have worked a lifetime to accumulate and make sure your future self and those dependent on you are protected and provided for.
A prenuptial agreement in Australia can provide certainty, protect assets brought into a relationship or accumulated during the relationship (in certain circumstances), prevent expensive and stressful legal battles after separation and so on and so forth.
Are you interested? You should be.
What is a prenup?
A prenup (prenuptial agreement) or as referred to in Australia, a binding financial agreement, is a legally binding agreement between two individuals that records their assets, liabilities and financial resources prior to marriage or prior to cohabitating in a de facto relationship. The agreement states what will happen to the assets, liabilities and financial resources upon separation and/or divorce. Prenups can specify how property, cash, superannuation, investments, inheritances and the like will be divided upon a separation.
The downside of a prenup is the complexity and criteria which must be satisfied before an agreement is binding and enforceable. In all circumstances this must involve independent legal advice for both people entering into the agreement. To give you an idea, even the simplest of financial agreements, which few exist, can end up being upwards of 20 pages. This sounds expensive, and if done right, it can be however, this is an investment in your future, an investment that will likely save you thousands in legal fees after the breakdown of your relationship. Short-term pain for long-term gain so to speak.
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How does a prenup agreement work?
For a prenup to be legally enforceable, certain strict and everchanging criteria must be met (for this reason, you should retain a specialist family lawyer to draft and advise you in relation to your agreement), some of these criteria are as follows:
- The agreement must be signed by both parties in the presence of a suitable witness, usually the witness is the parties’ legal representative.
- Both parties must have independent legal advice prior to entering into the agreement. Parties cannot share a lawyer or receive advice from the same lawyer under any circumstances.
- Those providing independent legal advice must sign a declaration that they have done so.
- The parties must have entered into the agreement without duress, coercion or undue influence. Both parties have to have entered into the agreement willingly without influence of another.
- The agreement should detail a complete disclosure of both parties’ financial positions. It is important that both parties have an accurate understanding of the others financial position. If a party fails to disclose a salient asset or liability, then the agreement may be unenforceable.
- The agreement must be fair and conscionable for both parties. If an agreement unfairly favors one person, then it is likely to be challenged on that basis.
Are prenup agreements actually honoured during a divorce?
This list is not exhaustive but gives the basics for a prenuptial agreement to be binding. With that being said, like with most things in life, there are loopholes which can be exposed for one person to challenge a prenup upon separation. These include but are not limited to:
- If the agreement was entered into or drafted fraudulently for example, one person did not disclose all of their assets at the time of entering into the agreement.
- If both or one person’s circumstances have changed since the agreement was entered into for example, there were children born of the relationship that were not alive at the time the agreement was entered into.
- If one person did not voluntarily of their own will enter into the agreement for example, if that person was coerced to enter into the agreement. One example we see often is where one person says to the other that they will not marry them unless they enter into a prenup.
- The agreement is not fair or just for both parties.
If either of these circumstances exists, then the agreement can be challenged in the Family Court and can be set aside/rendered unenforceable. For this reason, it is critical that you invest in specialist legal advice before considering a financial agreement.
If you are considering entering into a prenup or want advice about whether a prenup is right for you and your partner, you should seek specialist advice from a family lawyer. There are few family lawyers with specific expertise, so do your research and make sure you find the right fit for you.