What is a Prenup
Family Law: 04 October 2024
Author: Julia Popa - Our People
When two people marry, they almost certainly intend for their marriage to last. After all, that is the point of "in sickness and in health", right?
However, the introduction of a prenup may feel like the fairytale has collapsed entirely. Hearing your betrothed’s request for a prenup is not exactly romantic and may seem like a dreaded sign that they are preparing for the impending doom of your marriage at the outset.
While you cannot be blamed for having that perspective, this request can instead be viewed as a request for insurance. Most adults continue to pay car insurance premiums to ensure coverage for accidents they hope will never happen. Similarly, a prenup can simply be seen as marital insurance. It is wholly designed to ensure that you are ready for separation, even if that separation never amounts.
What is a Prenup?
Under the Family Law Act 1975 (Cth) (the "Act"), a "prenup" is technically termed a Binding Financial Agreement.
Binding Financial Agreements are written contracts between two people that stipulate the division of assets, debts, superannuation and financial resources following separation. Couples can enter these agreements before they get married, during their marriage or following separation.
Ultimately, Binding Financial Agreements seek to exclude the jurisdiction of the Court. The Act requires the Court to make orders for a property division that is "just and equitable" in all the circumstances. In doing so, the Court will consider whether there are any children to the relationship and the associated spend time arrangements, as well as the parties respective financial and non-financial contributions.
Nonetheless, couples, on their own volition, may opt for a division of assets that would not necessarily appear "just and equitable" on paper. For example, take a case in which one partner wants to protect a house originally owned before the relationship or an inheritance received during the relationship. The parties may decide to enter into a Binding Financial Agreement, assuming the other is content with this. When done correctly, this Agreement will work to keep the Court from having a say in the matter.
What About De Facto Relationships?
Partners to a de facto relationship can also choose to enter into a Binding Financial Agreement. This can occur during any phase of the relationship, including prior, during or post separation.
A relationship is considered "de facto" in the eyes of the law when unmarried partners live together on a "genuine domestic basis." To make this call, courts look at several factors. They check if the couple has been together for at least two years; whether the partners share their money; whether there is jointly owned property; and whether the couple has any children.
When a court decides a relationship is de facto, the Act grants the partners identical rights as married couples after they split up. Relevantly, these rights include the ability to make a claim for a property settlement or spousal maintenance.
Therefore, it is still a smart idea for de facto partners to consider a Binding Financial Agreement, even if marriage is not on the horizon.
Legal Requirements of Binding Financial Agreements
As previously mentioned, Binding Financial Agreements oust (or remove) the Court's jurisdiction over financial disputes between de facto or married couples. However, they are open to challenge by courts — usually when one party wants to get out.
If a court determines that a Binding Financial Agreement does not satisfy the legal requirements as of the Act, it can choose to set the Agreement aside entirely. While there is a long list of requirements, the key ones are:
- Each party must receive independent legal advice prior to signing. Essentially, this advice must cover how the Binding Financial Agreement affects the rights of the party receiving the advice. It should also explain the pros and cons for that party when entering the Binding Financial Agreement; and
- Each lawyer must provide written confirmation that they provided this advice to their client.
Additionally, a court has the power to set aside a Binding Financial Agreement if it is found that the Agreement was secured:
- Through fraud, which could happen, for example, when one party hides important information;
- By “duress”, which essentially means that one party was pressured; or
- Through unfair or “unconscionable” conduct.
When a court intervenes in relation to any of the grounds as outlined above, it well set aside the Binding Financial Agreement and take back its jurisdiction over the property settlement between the parties. Any orders made thereafter will be pursuant to a “just and equitable” division in all the circumstances and would likely stray from the terms of the original Binding Financial Agreement. This is why it is so important to nail this at the outset and preferably avoid any court involvement down the track.
Next Steps
Court proceedings can be quite costly and add to the emotional strain that often accompanies a breakup.
Binding Financial Agreements can avoid this. When done right, they are intended to provide couples with control over their financial arrangements if things go awry. In this way, they help people avoid significant expenses linked to drawn out court proceedings.
While this all sounds terrific, Binding Financial Agreements can be quite complex. There are many boxes that must be checked to ensure that they are actually binding in every sense of the word. If you would like some advice or assistance in relation to Binding Financial Agreements, please call our office on 03 8600 6000 and speak with one of our highly qualified and experienced family lawyers.