We are regularly contacted by people asking for advice on the preparation of a pre-nuptial agreement or a ‘pre-nup’, as we’ve covered in our previous article here. In Australia, pre-nups are actually referred to as Binding Financial Agreements and we often help clients in this area, whether they’re getting married or entering a de-facto relationship, or already married or in a de-facto relationship. We’re regularly asked a series of common questions, so we demystify each one of those questions in this article to help you make an informed decision on what might be appropriate for you and your relationship if you’re considering a pre-nup.
1. What is a pre-nup?
A pre-nup, or Binding Financial Agreement (BFA) as it is referred to in Australia, allows couples to enter into a legal agreement about their financial affairs in the event of a separation. This applies to married couples (post-nuptial), those who plan to wed (pre-nuptial) and parties in a de-facto relationship.
Binding Financial Agreements were introduced to provide a mechanism for couples who are either contemplating marriage, or are already married, to organise their affairs, including what could happen to property, businesses or how they would be looked after financially following a separation.
2. Are pre-nups (Binding Financial Agreements) legally enforceable?
The Family Law Act 1975 (Cth) allows couples to enter into a Binding Financial Agreement before marriage or cohabitation, during marriage or cohabitation, and after a relationship breakdown. Each party must enter into the Binding Financial Agreement willingly and effectively must be fully informed of the advantages and disadvantages of entering into the agreement, their rights etc. Each party must receive independent legal advice about the Binding Financial Agreement.
To ensure any pre-nup is less open to challenge later on, the parties should ensure that any contemplation of a Binding Financial Agreement is done in ample time to prepare the document and negotiate the terms before any wedding, and ensure there is no duress or undue pressure on either party. Both parties need time to fully consider, negotiate and obtain independent advice on the Agreement.
3. What are the benefits of having an agreement in place?
A significant benefit of a BFA is that it can provide clarity and certainty to both parties in a relationship and can extend to their families too. By setting out agreed-upon rules prior to any potential dispute, it may be more likely that the agreement will be considered by all parties to be fair and reasonable.
A BFA can seek to protect pre-existing assets from claims by the other party, which is important when one party is in a superior financial position to the other. Often one party has accumulated assets prior to the relationship without contribution from the other party and therefore wish to ensure those assets remain theirs upon separation.
4. What are the cons and pitfalls?
The Family Law Act gives the Court power to set aside a BFA in a number of circumstances.
Such circumstances include:
- where it was obtained by fraud or duress;
- a party failed to disclose relevant matters;
- where the objective of the agreement was to defeat the interests of other parties;
- where circumstances have arisen which make it impracticable for the agreement to be carried out;
- since making the agreement, a material change in circumstances has occurred relating to the care and welfare of a child and, as a result of the change, the child or a party to the agreement will suffer hardship if the court does not set the agreement aside;
- Any provision in a financial agreement that seeks to exclude or limit maintenance payments can be ineffective if at the time of the agreement coming into effect the proposed recipient is unable to support himself or herself without resort to an income tested pension benefit or allowance.
If a financial agreement is set aside, the Court can make orders for property settlement and maintenance in accordance with the principles set out in the Family Law Act.
5. What would the agreement contain?
The agreements are tailored to individual circumstances; no one agreement is the same as another. The agreement can deal with the division of both property (assets, liabilities, superannuation and financial resources) and spousal maintenance, or some agreements deal only with property division and leave spousal maintenance to be dealt with at a later time with no agreement prior to a separation.
The agreement may set out how assets are to be held and managed during the marriage, for example, whether a joint account will be opened and how property is to be held.
6. Do lawyers need to be involved?
Put simply, yes! For a BFA to be in fact “binding” under the Family Law Act, it requires, among other things, a lawyer to certify that they have given advice to their client with respect to:
- The effect of the Agreement on that person’s rights; and
- The advantages and disadvantages, at the time the advice was provided, of that person making the Agreement.
Without this advice, the Agreement may not be binding and enforceable even if it is duly signed by all parties involved.
7. How do I terminate an existing Binding Financial Agreement?
A Binding Financial Agreement can be “terminated” in one of two ways:
- the parties can enter into another financial agreement, provided that a specific provision is included in the new agreement stating that the former agreement is terminated; or
- the parties can enter into a “termination agreement” pursuant to section 90J (for married couples) or section 90UL (for de facto couples) of the Family Law Act. As with the original BFA, for a termination agreement to be binding and enforceable, it must be signed by all parties to the agreement, and each of the parties must have received independent legal advice with respect to the termination agreement.
8. What is the cost of an agreement?
Costs depend on the complexity of the financial arrangements and the length of the negotiations. However, the existence of a fair and negotiated agreement can mean legal costs are significantly lower in the long run than if there are subsequent divorce proceedings.
If you, or someone you know, is entering a relationship or marriage and could benefit from a discussion about whether a Binding Financial Agreement is right for them, please contact us for an appointment at our office in Fortitude Valley, Brisbane.
The blog published by Daykin Family Law is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog publisher. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult Daykin Family Law on any legal queries concerning a specific situation.