Posted Thursday 8th November 2018

Prenuptial Agreements - are they worth it?

Prenuptial Agreements are a controversial topic.  In recent times, we have seen a number of prenups thrown out by the court.  So it is really worth making one?

The answer depends on each individual set of circumstances but generally speaking, if you are thinking that you can totally exclude your partner from claiming any part of your fortune including any part of it accumulated during the marriage, you may need to think again.   

We explain below some of the things you need to consider before deciding whether a Prenup will work for you or not.

First of all, are prenups legally enforceable?

Yes. The official name for a Prenup in Australia is a ‘financial agreement’ under section 90B of the Family Law Act 1975. Subject to the court’s power to set it aside, a financial agreement is legally binding and enforceable as long as it complies with the requirements in this provision (for example, both parties must seek an independent legal advice).

So when could the court set aside a Prenup?

 We now look at some of the most common reasons why a Prenup may be set aside by the Court.

1.       Non-Disclosure of your assets/financial resources

The basic rule of a Prenup is that both parties must fully disclose his/her financial position including all assets and financial resources to the other party. If you have substantially more assets than the other party, you may be tempted to keep some of them secret. But your partner later finds out that you did not disclose particular assets before signing the Prenup, it will give him/her a very good reason to challenge the Prenup after separation/divorce.

There is an exception to this rule –the parties can agree and acknowledge that the Prenup was signed without full disclosure. But remember, your partner must receive independent legal advice before signing the Prenup. Most lawyers will advise against signing a Prenup without full disclosure. Any Prenup without full disclosure may be scrutinised by the court including possibility of unconscionable conduct and duress (discussed below) if later challenged by your partner.

2.       Unconscionable conducts and duress

If you have substantially more assets than your partner, it is only natural to feel that you want to protect them. It is also natural for your partner to expect some slice of it in the event of separation/divorce. Your partner may not be willing to sign a Prenup which will make little or no provision for him/her. If this is the case, do not even think about forcing him/her to sign or make any threat of wedding cancellation etc.

There are a few cases in which the court has set aside Prenups due to duress. For example, a Prenup was set aside by the court because the wife was pressured to sign it after the husband threatened to cancel the wedding the day before.

3.       Children

This is probably one of the most common causes of Prenups being set aside. Once you start having child/ren of the marriage and the Prenup does not make any provisions for child/ren, then it is likely that the Prenup will be set aside.

 4.       Agreement not just and equitable

Even though the beauty of Prenup is that the parties can decide how to divide their assets upon separation/divorce in any way they want without court interference, there is a certain limit to it. The court will consider whether the contents of the agreement are fair and equitable in all circumstances and this will be assessed on case by case basis. It is quite obvious that giving your partner absolutely nothing will not be looked upon favourably by the court but sometimes what you thought was an adequate provision at the time of signing may not be enough down the track.

Changes in the parties’ circumstances, for example, are one good reason why the court will set aside a Prenup. The birth of child/ren of the relationship is an obvious one but also your partner’s health, employment status and even length of marriage will all come into play. But these things are almost impossible to predict when signing a Prenup, making a Prenup less attractive to many couples.

So is it worth it?

As you can see from the above, broad exclusion of your partner will simply not work. However, a Prenup can be a great way to protect your assets in some circumstances. For example:

  • You can make a Prenup which only deals with pre-marriage assets that you have accumulated on your own and you can exclude your partner from claiming them.
  • If you are expecting large inheritance in the future, you can make a Prenup which excludes your partner from claiming your inheritance.
  • You can also make a Prenup for specific assets/properties only which you really want to protect.
  • You can make a Prenup and revise it every few years or when the parties’ circumstances change (such as birth of a child). Financial Agreements can be made during the marriage so they are possible to update and replace at any time so that you always have a binding agreement which reflects your current circumstances.

Finally, it is most important that both parties freely discuss and agree on the contents of any Prenup and feel comfortable about it. If both parties are happy with what they are getting, it is far less unlikely to be challenged later on.

Remember, court litigation can cost you a lot of money. Often it is cheaper for you to make adequate provision for your partner rather than fighting him/her in court.

For a confidential appraisal of your situation and circumstances to determine whether a financial agreement may be right for you, please contact us for an initial consultation.

Tags: Prenuptial Agreement, Binding Financial Agreement, Family Law, Married Or De Facto Partners, Protecting Assets

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