No one enters into a marriage or partnership expecting it to fail. However, no one buys health or home insurance expecting to fall ill or experience a break, yet most people do the latter without question.
This article will explain what a prenup is, and how creating a prenup or binding financial agreement in Australian law can help you outline clear expectations with your partner about the division of assets.
Key takeaways
Prenuptial agreements, commonly known as prenups, are legally binding documents that establish a framework for asset division in case of separation or divorce.
It is important to clarify that prenuptial agreements are not exclusive to the financially affluent. Rather, they can serve as practical tools that benefit couples from a variety of financial backgrounds.
For a prenup to be legally binding, it must meet certain conditions, including full disclosure of each party’s financial situation.
By specifying asset division in advance, prenups help avoid lengthy and expensive legal disputes during divorce proceedings, making the separation process smoother and more amicable.
Prenuptial agreements encourage open communication about financial matters between partners, fostering a healthier, more transparent relationship foundation.
What Is Prenup (Prenup Agreement)?
A prenup or prenuptial agreement is a legally binding document under the Family Law Act 1975 that protects each party’s pre-marital or pre-relationship assets.
A prenup agreement is a legal log of each party’s assets and liabilities before entering the relationship. It then outlines how these assets may be divided in separation or divorce. To make the agreement legally binding, it must satisfy the following criteria;
- Each party is to disclose their financial position, including assets and debts, fully;
- The agreement must be put in writing;
- Each party must have independent legal counsel before signing the agreement;
- Each party must sign the agreement willingly.
Do Prenups Exist in Australia?
Yes, prenups exist under Australian law and are called binding financial agreements. They can apply to both married and de facto relationships and essentially exclude the Family Law Act from having any say in deciding how to divide assets and liabilities in case of a relationship breakdown.
Learn more: What Is a Binding Financial Agreement?
Common Misconceptions About Prenuptial Agreements
Prenuptial agreements are often misunderstood. Many believe it is only necessary for the wealthy to signal a lack of trust or anticipate marriage failure.
However, prenups are practical tools that can benefit all couples, regardless of their financial status. It is like insurance, protecting the interests of both parties and creating a solid foundation for the relationship by fostering open communication about finances.
Prenups provide clarity and security for the future, and they are not about anticipating negative outcomes but about preparing responsibly for any eventuality. It can ensure peace of mind and strengthen the bond between partners.
Who Can Get a Prenup?
While prenups are usually associated with marriage, they can also be created for de facto relationships and apply to both heterosexual and same-sex couples. In other words, anyone can enter a binding financial agreement, provided both parties willingly agree to and sign the deal.
It’s also important to know that a couple can enter into a binding financial agreement at any stage of their relationship, including before getting married or entering a de facto relationship, during the relationship, and even after the relationship has ended, which is called a financial separation agreement.
Prenuptial Agreements Requirements
To make a prenuptial agreement legally binding, several requirements must be satisfied.
These include;
- Both you and your partner must receive independent legal advice from separate lawyers before signing the agreement. This advice must outline your specific rights as well as the advantages and disadvantages of signing the contract;
- The agreement must be signed by both you and your partner in the presence of each of your lawyers;
- The legal advice given to each party must come from a solicitor who is currently admitted to legal practice in Australia and
- Each respective lawyer must provide a signed statement to their client (each party, i.e. you and your partner) confirming that you each received independent legal advice.
It’s important to know that if these criteria are not met, your prenuptial agreement may not be binding and may be open to being void or challenged.
What Do Prenups Cover?
A prenuptial agreement can cover all financial aspects of each individual in the relationship, as well as shared assets and liabilities.
It can outline the separate assets, liabilities, and financial resources of each party obtained or accrued before you entered the relationship. This could include property owned, debts owed, and superannuation accrued.
It can also cover financial assets and debts acquired during the relationship, such as the family business, home or investment property, mortgages, car or personal loans. Finally, it can also govern if and what a
Benefits of Signing a Prenup
Creating and agreeing to a prenuptial agreement before entering into marriage, or at the start of a de facto relationship, allows both parties to amicably concur on how they might divide any assets should the relationship fail.
While these agreements are not always binding, they provide a legal basis for resolving property and financial disputes.
A binding financial agreement takes the guesswork out of divorce and separation proceedings by clearly stating who is entitled to what. It can also save you a lot of time and money, as if both parties disagree on who is entitled to what, the legal process can be drawn out and incur more significant fees or even court proceedings.
Some reasons you should consider entering a binding financial agreement:
- A prenup allows you to protect your valuable assets, which is especially important when there is a significant difference in income or ownership of personal assets;
- The agreement is not set in stone. You and your partner can agree to change or cancel a contract at any time;
- The agreement can save significant time and money, with the division of assets finalised quickly in the event of separation or divorce;
To know more about the benefits of prenuptial agreements, check out our blog here.
Disadvantages of Signing a Prenup
In a relationship where one party earns significantly more than the other or does not work (a stay-at-home parent, for example), it’s essential to ensure that the prenuptial agreement outlines the value of what the non-working partner brings to the relationship or family.
The time spent caring for children, for example, is a significant contribution that needs to be included when considering the division of assets or the payment of spousal maintenance in a prenuptial agreement.
If a contract does not consider this, you may be disadvantaged if you do not receive what you believe you may be entitled to.
This is why it is imperative to seek the advice of an experienced family lawyer to help you understand what you may need to have included in the agreement.
What Do I Need to Consider Before Entering a Prenuptial Agreement?
What Do I Need to Consider Before Entering a Prenuptial Agreement?There are several things to consider before committing to a prenup.
Firstly, you need to consider how you are planning for the future. It’s important to remember that if a relationship never breaks down, a prenup never gets enforced.
By entering into a binding financial agreement, you and your partner prepare for the worst-case scenario without the emotion or stress of doing it during a breakup.
It’s essential to seek legal advice to discuss your situation because, if completed correctly, these agreements prevent the court from stepping in to divide your assets.
How To Arrange a Prenuptial Agreement
To make a prenuptial agreement legally binding, it must adhere to strict technical requirements and, therefore, be prepared by an experienced family lawyer.
How Much Does a Prenuptial Agreement Cost?
There is no fixed price for filing a binding financial agreement in Australia, as it is prepared and reviewed by a second independent lawyer.
Are Prenuptial Agreements Always Binding?
It’s important to understand that prenuptial agreements are not set in stone. There are several reasons a prenuptial agreement may be voided, so it’s essential to seek the advice of an experienced family lawyer to understand the risk of this in your situation and how this may be avoided.
Some reasons an agreement may be immediately voided include;
- The agreement is found to be fraudulent (which could happen if you or your partner intentionally fail to disclose financial information);
- Legal or technical requirements are not met, such as independent legal advice not received by one or both parties;
- You or your partner were pressured into signing the agreement;
- The agreement cannot be practically fulfilled.
How are Prenups Enforced?
Due to the nature of a prenuptial agreement being a legally binding document, it essentially removes the Family Court from having a say in the division of your assets.
If you wish to dispute the agreement, you must seek legal counsel, and the matter will be taken to court. However, this does not guarantee it will be heard, let alone thriving.
Conclusion
A prenuptial agreement is a legal contract that defines how shared assets and debts will be divided in the event of a couple’s separation. It is not solely intended for affluent individuals but is recommended for all couples.
To ensure enforceability, strict legal requirements must be met. By predefining asset allocation, prenuptial agreements help avoid legal disputes and foster transparency and mutual comprehension between partners.
It is a practical measure to secure one’s financial future and strengthen the relationship.
If you need assistance with family law matters, Andrews Family Lawyers can help.
