Binding Financial Agreements or ‘pre-nups’
When you are about to get married, it is not with the intention of getting divorced later in life. As such, the benefits of a Binding Financial Agreement are easily dismissed.
There is an old saying that is applicable here: “Hope for the best, plan for the worst”. Putting a prenup in place is simply risk management, for your life.
A prenuptial agreement is referred by the Family Law Act as a Binding Financial Agreement (BFA). A prenup is a legally binding financial agreement between two people who are meaning to get married (a similar agreement can be prepared if two people are planning to live together in a de facto relationship).
A prenup records what assets and debts each person brings into the relationship and states what will happen in the event that the relationship breaks down (separation or divorce), and how the couple’s finances will be divided.
There are a number of very strict requirements that must be met by the agreement in order for it to be considered binding.
- Prenups must comply with strict legal guidelines as outlined in the Family Law Act (1975).
- They must be in writing.
- Each person must have received independent legal advice before signing the prenup.
- The legal advice provided must have come from a lawyer in the Australian jurisdiction.
- Each person must have signed the prenup voluntarily (free from coercion, duress or undue influence). This means one person cannot tell the other that they will not marry them unless they sign a prenup.
- The prenup should contain a complete disclosure of each person’s financial standing.
What are the benefits of Prenuptial Agreements?
There are a number of ways having a prenup can be of benefit if a relationship is to breakdown as they:
- As the prenup sets out what is to happen with each parties assets, they facilitate a swift and smooth separation or divorce by preventing contentious disagreements.
- Minimise Costs – the cost of a separation or divorce rises with contentiousness. A prenup will significantly reduce the associated costs.
- Minimise Acrimony – Prenups often work to reduce acrimony between the two people involved. Prenups have the potential to allow both parties to end the relationship amicably, on better terms.
- Prenups provide protection of valuable assets, including premarital property, family heirlooms and businesses owned.
- A prenup provides both parties with clarity and certainty on the events that will unfold should the relationship breakdown. This means less confusion when it comes to making decisions about the future of the relationship.
- Prenups have been shown to strengthen current relationships and make separation and divorce less likely. This occurs because a prenup forces the couple to have important discussions about their future, providing both parties with a clear understanding of the other’s intentions and thus increasing the chance of a successful and peaceful marriage.
Are Prenuptial Agreements always enforceable?
For a number of reasons prenups are often overturned by the Court. Common reasons of agreements can overturned are:
- Children – If an agreement does not provide for circumstances relevant to future children, it may be set aside.
- Non-disclosure – If a party does not disclose the full extent and value of their assets at the time when the prenup was drafted and signed it may be set aside.
- Unreasonable Pressure – If a party unreasonably pressures or coerces the other party into signing the agreement it may be set aside.
- Last Minute Decision – If a party requires the other to sign the agreement shortly before the wedding as a condition of the wedding continuing it may be set aside.
- Unfairness – If an agreement is not just and equitable (fair) it may be set aside.