How do you settle property matters? A crucial part of relationship breaks is the division of assets. It’s essential to apportion property fairly to protect the future interests of both parties involved in the agreement and recognise their contributions. Consent orders and pre-nuptial agreements in Australia are the primary ways to create a legally enforceable financial arrangement. These avenues can also cover a de facto relationship.
A pre-nuptial agreement is becoming the norm for couples contemplating marriage but wanting to protect their assets. You may believe that creating a pre-nuptial agreement suggests a lack of trust. But this is the wrong way to think about the issue. Nobody knows what the future holds. Taking sensible steps to prevent unnecessary hardships is critical.
You might think of it like insurance, you may not like it, but if the time comes to claim, then you’ll be so glad you have it.
How does a pre-nuptial agreement cover you if you don’t want to deal with court orders?
Key takeaways
- Prenups are called financial agreements in Australia and don’t involve the Court.
- The Family Law Act 1975 covers the legalities around property settlements.
- Financial agreements can include all marital property, even what was owned before marriage.
- When dividing property, it’s vital to consider superannuation, business interests and insurance policies.
- A financial agreement is particularly beneficial for people who marry later in life or are on their second or third marriage.
- Agreements should consider the interests of children and may include provisions for child support.
- Financial agreements can be challenged on several grounds. This may result in damages being awarded, the agreement being overturned or enforced.
What Is a Pre-Nuptial Agreement?
Most people would be familiar with the concept of a pre-nuptial agreement. However, this is an American term. We refer to them as a legally binding financial agreement in Australia.
Financial agreements are contracts entered into by parties without involving Family Court proceedings. This contrasts with financial consent orders which do require the Court’s approval.
Importance of pre-nuptial agreements
Any couple who brings personal or family business assets to the marriage can benefit from a prenup. The most basic of these contracts lists an inventory of premarital assets that will remain the property of their original owner in the event of a divorce.
Prenups are good because they preserve the parties’ expectations and prevent surprises in a property trial. Even though that may be the last thing on your mind when planning a ‘forever after’.
The agreements can specify that you won’t share future income from a business or additional assets accrued through inheritance after the marriage ends.
What Is the Law for Pre-Nuptial Agreement?
In Australia, binding financial agreements are governed by the Family Law Act 1975. The critical parts of the Act that govern financial agreements are Division 4 of Part VIIIA and Division 5 of Part VIIIAB. These provisions set out the requirements and procedures for creating, enforcing, and setting aside binding financial agreements.
Some key points regarding financial agreements under Australian law include:
- Voluntary Agreement: Both parties must agree voluntarily, without any pressure or coercion.
- Independent Legal Advice: Each party must obtain independent legal advice from a qualified family lawyer. The lawyer must provide a signed certificate of advice, including as an annexure to the agreement.
- Financial Disclosure: There must be full and frank financial disclosure by both parties. Each party must accurately understand their financial circumstances, including assets, liabilities, and financial resources.
- Formal Requirements: Binding financial agreements must be in writing and signed by both parties. They should also include a statement that each party has received independent legal advice.
What Can Prenups Include?
People often underestimate what property is covered by a financial agreement. Some believe that property acquired before the marriage will remain with its owner. However, when you marry, you join lives, and existing property becomes part of a shared marital asset pool.
Pre-nuptial agreements can address property acquired before a marriage, such as money in savings, a home or even your Grandma’s antique desk. You can include almost anything in a prenup. Again, you may not be even thinking along that line whilst the romance is over the moon and everyone is blissfully in love. The problem is that assets become co-mingled after they get married. Family Courts will look past any attempt to exclude your spouse from your will.
Here are examples of assets many people don’t consider when drafting a financial agreement:
Superannuation
Superannuation has become one of the most valuable assets for most Australians. While superannuation interests are subject to property settlements, specific mechanisms exist for dividing them. There are two primary methods for handling superannuation:
Splitting
Splitting laws permit parties to divide a superannuation interest between two accounts. This asset is still subject to superannuation laws, so payments won’t commence until the retirement phase.
Offsetting
Instead of receiving a portion of an ex-spouse’s superannuation, one party may get an offset in the division of other property. Essentially, one party waives their entitlement to a part of a keen interest and receives a more significant portion of other assets instead.
Business interests
A business interest is treated as property in a prenup agreement. The interest must be valued, which can be done with the help of a forensic accountant. The way a business is valued can depend on its structure.
Insurance Policies
Dealing with insurance policies during
a divorce is a complicated issue. Often a policy can be divided between the parties. However, some insurers may require you to update your policy t
o reflect the change in circumstances first. Some policies may allow specific benefits to be transferred and not others.
What a Financial Agreement Cannot Include?
Financial agreements only deal with property. There are many factors related to divorce a financial agreement cannot cover, including the following:
Child support
Financial agreements cannot include provisions for child support or maintenance payments for children not yet born. Child support is regulated by the Child Support (Assessment) Act 1989.
Parenting arrangements
A financial agreement cannot determine parenting arrangements, including residence (custody) and visitation (access) rights. These matters are typically decided based on the child’s best interests and can be addressed through parenting plans or court orders.
Matters contrary to public policy
A financial agreement cannot include provisions contrary to public policy or illegal. For example, an agreement that seeks to limit or exclude spousal maintenance in a way that would leave one party destitute may be unenforceable.
Unforeseeable circumstances
Financial agreements should address assets, financial resources, and liabilities existing when agreeing. They generally cannot cover future events, such as an inheritance, that are uncertain or unforeseeable at the time of the agreement.
Who benefits from a financial agreement?
Financial agreements are a good idea for anyone getting married. But they are instrumental in particular situations. A party entering their second or third marriage, or someone entering a wedding later in life, would benefit.
Typically in these positions, you have likely attained greater financial wealth. Organising an agreement to preserve your financial security is necessary for that situation.
Children and financial agreements
Financial agreements must consider their interests carefully if children are in the marriage. If a couple doesn’t have children but plans on having them, it’s still worth including provisions for them.
You may have children from a previous marriage. A financial agreement can ensure your estate is maintained for their benefit.
The Family Law Act allows financial agreements to arrange for child support. However, this is only possible for children already born and can be named in the agreement. The Court may overrule child support provisions if it feels it’s in the child’s best interests.
Other financial support, such as spousal maintenance, can also be included in a financial agreement.
- Check this out: What Are the Risks of DIY Vs Hiring Professional Family Lawyers?
Requirements for a Financial Agreement
One potential benefit of a financial agreement over a consent order is its flexibility. Financial consent orders must pass the Court’s four-step process before they are accepted. The Court demands that property settlements are “fair and equitable” for both parties. The Court ensures this by assessing applications based on each party’s contributions to the marriage and their future needs.
Any such requirement doesn’t bind financial agreements. However, they must satisfy some criteria before they’re considered legally binding.
Since the parties aren’t involving the Court, they must seek independent legal advice instead. A lawyer will assess the agreement and ensure the party understands how it affects their interests.
Once the parties agree to the contract terms with legal guidance, they will receive a certificate proving they received independent legal advice.
Challenging financial agreements
There are specific circumstances where the Court may set a financial agreement aside. These circumstances include:
- The agreement was fraudulently obtained. For example, if one party didn’t fully disclose their finances;
- The parties didn’t receive independent legal advice;
- The parties’ financial circumstances changed, which the agreement didn’t account for. An example may be if the couple had a child;
- One of the parties acted unconscionably during the drafting or signing of the agreement.
If an agreement is challenged, the Court can take different actions. The Court may terminate the contract, award damages, or enforce all or part of the agreement.
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Preparing for a financial agreement
Sometimes a pre-nuptial agreement can create a sour taste. But, when one spouse’s assets are far greater than the other, it is a wise move. The wealthier party would likely insist on an agreement before formalising the relationship.
Pre-nuptial agreements rely on fair and full disclosure of assets when signing.
You can avoid this premarital formality if you keep separate property; separate bank accounts, property, and expenses. However, this would rarely happen successfully in the eyes of a judge. A recent poll in the US suggested that 44% of singles and 49% of divorced people said a prenup was a good idea, whilst 15% of divorced people regretted not having one.
Just as a marriage certificate is a contractual agreement, a prenup can be considered part of joining two lives.
Let us help
Financial agreements are a critical part of a divorce. Ensuring that the marital asset pool is divided appropriately significantly affects both parties’ future. If you’re considering drafting a financial agreement, seek legal advice first.
Shanahan Family Law has significant experience with all aspects of divorce. Our experienced team can help ensure that your interests are protected.
If you need help with family law matters, contact us for a free discovery call.
