Are Prenups effective?
If you are over 50 and either in a new relationship or embarking on a new one, you may be looking into whether a Prenuptial Agreement is something you need.
This article covers some commonly asked questions about Prenuptial Agreements:
- What is a Prenup?
- When should prenups be considered?
- Is a prenup legally binding in Australia?
- Do prenups stand up in Court?
- How long does a prenup last in Australia?
What is a Prenup?
The term Prenup or Prenuptial Agreement is often used to refer to a type of Binding Financial Agreement, or BFA. This document provides clarity as to what will happen to your property if a relationship breaks down. It takes into account what you and your partner each brought to the relationship, as well as whatever property you may have jointly acquired. The goal of a Prenup is to detail an agreement that two people have agreed upon and avoids disputes that could end up in Court.
Typically, these agreements provide for parties to each retain what they brought into a relationship or fixed entitlements, such as providing for one party to receive a specific amount if the relationship breaks down after a certain number of years have passed or in some cases use a percentage formula.
When should Prenups be considered?
A Prenup can be a difficult topic for a couple to discuss because, of course, every couple wants to believe their relationship will last. However, the future is uncertain, and it is always a lot easier to discuss a topic like this with your partner now, than it would be in the event of a relationship breakdown where communication may be a lot more challenging.
If you have previously experienced a relationship breakdown, then you will know that deciding who gets what can be both stressful and expensive. You may also know that it can take a lot longer to be resolved than you might like. Distributions of property vary according to individual circumstances. Estimates of a potential settlement vary from lawyer to lawyer, and the eventual outcome in the Family Court may be entirely different again.
You may wish to consider a Prenup if you are entering the relationship later in life after you, for instance, have been divorced. A prenup is particularly relevant if you are bringing significant assets to your new relationship.If you have children from a previous relationship, you may wish to use a Prenup as a way of ensuring your assets will remain available for your children.
Other common reasons to consider a Prenup include if you stand to inherit significant wealth, or have, or will eventually have, a share in a family business. Alternatively, if your family have advanced you and/or your partner a loan or gifted either of you money, it may be wise to sign a financial agreement that specifies whether that advance was a gift or a loan. That agreement should also detail how this is to be treated in the event of a relationship breakdown. This is vital to avoid a circumstance where the Family Court might define it as something else. You may also wish to consider a Prenup if there is considerable disparity between what you own and what your partner owns.
Is a Prenup legally binding in Australia?
A properly drafted Prenup is difficult to set aside, but it is not impossible. Prenups can be challenged on the basis that the prescribed procedure has not been followed.
One of the common challenges to a Prenup relates to the requirement that both parties to a Prenup receive independent legal advice. You and your partner should seek advice from different lawyers and make sure you have allowed enough time for the terms to be negotiated, reviewed and agreed upon. A good lawyer will ensure that you understand exactly what you are signing and that you are not under any kind of pressure to sign the document.
Another basis for challenging a Prenup is a lack of disclosure by one or both of the parties. Full disclosure of your assets is important when drafting a Prenup because it is necessary to ensure that both you and your partner understand the significance and possible impact of what you are signing. Your individual situation and surrounding circumstances need to be taken into account. A person cannot waive their rights to property that they did not know exists, nor can they be said to have fully understood them.
Do Prenups stand up in Court?
A well drafted Prenup should mean that neither you nor your partner will need a lawyer in the event of a separation, as the process to follow will be provided for and will be able to be followed by in some cases your accountants assisting you. However, no agreement is completely guaranteed to go unchallenged. Your partner may attempt to challenge the Prenup, but this does not necessarily mean that your Prenup will be set aside.
We liken Prenuptial Agreements to a shield. The shield provides you with protection but like any shield you have to hold it up to use it, meaning that if your partner challenges it, then you will need to oppose the application in Court.
How often should you review your Prenup?
We recommend that you review your Prenup every five years. Although, the timing of a review may also be dictated by the terms of the agreement, as some may attach a list of all property and require that the list be regularly updated. This should be carefully considered when drafting the agreement, as any failure to update the list of property as provided for in the Prenup, may then adversely affect your ability to enforce the agreement. Your lawyer will need to consider both commercial enforceability as well as compliance with the legal requirements when drafting your agreement.
Signing a Prenuptial Agreement
Suggesting and signing a Prenuptial Agreement, while possibly a difficult topic to broach with your partner, can provide you with peace of mind. It ensures that if the relationship ends, both you and your partner will know where you stand financially. Possibly the most significant advantage is that having one can remove one of the stressors of such an event.
Given the significance of such a document, it is important for it to be carefully drafted and that both of you receive independent legal advice to ensure that you understand exactly what you are signing and that the proper procedure is followed.
Related Articles: Binding Financial Agreements as an Estate Planning Tool
Phillips Family Law is an award-winning Family Law practice serving clients across Australia and abroad. Regardless of where you are in your decision-making process, we can make you aware of your options. To discuss your situation confidentially, phone +61730079898 or secure a time by clicking here.
Disclaimer: The content in this article provides general information however it does not substitute legal advice or opinion. Information is best used in conjunction with legal advice from an experienced member of our team.