Prenuptial agreements are one way for spouses or de facto partners to make an enforceable property settlement. They have several potential benefits and drawbacks that depend on each person’s personal circumstances. There are also some common pitfalls many parties fall into when seeking one.
Key takeaways
Prenuptial agreements are a form of financial agreement entered into before a marriage.
There are various circumstances where parties often choose to enter a binding financial agreement (BFA).
BFAs can be challenged due to some common mistakes.
Prenuptial agreements versus binding financial agreements
You may have heard of a prenuptial agreement or ‘prenup’ from US tv shows. However, it’s not a name that’s used in Australian family law. In Australia, they’re more commonly referred to as a binding financial agreement (BFA).
BFAs are a type of legal agreement made under the Family Law Act 1975 that allow parties to divide assets and set out financial arrangements. These agreements may be entered into before, during, or after a marriage or de facto relationship. The term ‘prenuptial’ refers to an agreement that’s formed before a marriage.
Note: The Family Law Act uses the term ‘financial agreement’. The term binding financial agreement, or BFA, is common among lawyers and is used in this article.
What may and may not be covered
BFAs typically cover the entirety of a couple’s finances, including:
Bank accounts.
Stock portfolios.
Investment properties.
Mortgages.
Credit card balances.
BFAs may include assets and liabilities that were brought into the relationship, were accrued during the relationship, and define how assets acquired in the future are handled. A BFA doesn’t include clauses regarding parental responsibilities. Arrangements for child support are also usually organised through a separate process under the Child Support (Assessment) Act 1989.
Legal requirements
The Family Law Act 1975 sets out the criteria that a BFA needs to meet to be legally binding in Australia. To be properly executed, BFAs should complete certain steps, including the following:
Both parties must receive independent legal advice from their own lawyer. The advice should cover the client’s legal rights and the advantages and disadvantages of the agreement on their financial situation.
The agreement needs to be in writing.
Both parties must sign the agreement.
Each lawyer gives their client a signed statement affirming that the required advice was provided. A copy of the statement is then given to the other party or their lawyer.
When parties consider prenuptial agreements
There are various circumstances where parties may consider entering a BFA prior to getting married. Some common situations where BFAs are considered useful include the following.
Significant asset pool
Some parties have large property pools with complex assets, such as:
Business interests.
Multiple investment properties.
Superannuation interests.
Discretionary trusts.
Insurance policies.
BFAs only face court oversight when they’re challenged. This means that parties may have slightly more flexibility in what the agreement contains. BFAs may permit specific treatment of property by, for example, quarantining certain assets or managing a business owned by one or both parties.
Asset protection and family wealth preservation
Some parties are looking to protect particular assets, such as:
Family heirlooms.
Property from previous relationships.
Expected inheritances.
Family business assets.
Wealth meant to protect children of a previous relationship.
BFAs may separate property or exclude future assets from being divided. This may be considered when one partner has more assets or wants to protect their children’s financial security. They may also be useful when there’s a business that’s been in the family for generations. A BFA can create clear expectations and reduce the chance of disputes arising between a future spouse and adult children.
Common mistakes that may make prenups unenforceable
There are various issues that may render an agreement invalid after a relationship breakdown. Some common reasons why parties face legal problems include, but are not limited to, the following:
Non-disclosure. Parties to an agreement have certain financial obligations. One of the most crucial requirements is producing information on your complete financial circumstances. If some asset is left out, either accidentally or deliberately, the BFA may be set aside.
Undue influence. Parties must enter the agreement freely. If there’s evidence that one person was coerced or forced to agree under duress, the agreement may be invalidated.
Failure to meet requirements. If the parties don’t meet a BFA’s requirements, such as not getting independent advice, it may not be legally sound.
Conclusion
Prenups are a form of legally binding financial agreement that parties can enter into while contemplating marriage. Couples often look to BFAs in various circumstances, such as when they have complex property pools, and there’s a desire for flexibility. However, there are some common mistakes parties make when seeking an agreement.
Are you seeking a legally binding agreement?
If you need assistance with financial matters before or after a relationship break, Shanahan Family Law can help. Contact us today for a free discovery call.
Disclaimer: This article provides general information only. It is not legal advice. Family law outcomes depend on your circumstances. You should speak with a family lawyer before making decisions about your matter.
