A prenuptial agreement or ‘prenup’ is also known as a ‘binding financial agreement’ in Australia. It is a binding contract signed prior to marriage which sets out how the assets owned by each party are to be distributed upon separation. There is a preconceived notion that only the wealthy need to enter (or even consider) a prenuptial agreement. However, prenups can future-proof any or all of your assets if your marriage or relationship breaks down.
Prenups. I Do. I Don’t
Why Should I Enter a Prenup?
- A prenup gives couples certainty as to what they are entitled to if their marriage or relationship ended.
- Prenups can be made to cover either marriage or de facto relationships.
- A prenup can be terminated by the parties at any time by entering into a termination agreement.
- A prenup and its coverage is tailored to your needs. Prenups can cover how all or any assets are to be distributed and any incidental matters. Prenups can also provide for maintenance of either party during or after the relationship.
- Prenups can also include a provision for the splitting of superannuation interest.
- Australian family law has established principles and presumptions that are applied by the court when distributing assets after a marriage/relationship. A prenup can effectively exclude these principals and uphold your individual needs.
- Prenups will save parties both time and money during the separation process. Court proceedings to separate assets can be financially and emotionally draining. Drafting a prenup is not a long process and is significantly cheaper than litigation costs.
- Prenups can be useful for an individual to plan their estate. Knowing what assets you are entitled to upon separation allows you to better plan for the provision of your children in your will
What are the Cons of a Prenup?
- Prenups cannot be registered in court. To ensure validity, prenups must comply with strict requirements set out in the Family Law Act 1975 (Cth).
- Prenups cannot be enforced by the court. Prenups set out the result of negotiation that would usually take place between parties after separation. If there are court proceedings following a separation, the court may disregard them if it has been drafted in error or unfairly.
- Prenups are currently effective and efficient in separating assets. However, there is the possibility that future law reform changes the operation and effectiveness of agreements.
- While prenups can effectively oust the jurisdiction of the Federal Circuit and Family Court of Australia, prenups can be used by one party to exert financial control over the other. Australian family law principles promote ‘fair’ distribution of financial assets, taking into account the contribution (both financially and domestically) of each party. However, the unique nature of prenups means that one party may unjustly benefit in the eyes of the law.
- Prenups made in Australia are governed by Australian law. It can be challenging to implement the agreement for assets located overseas.