Prenup

Prenup is the everyday term used to describe a written agreement between a couple that sets out how their finances are intended to be dealt with if they separate. Although the word “nuptial” in the term “Prenuptial agreement” refers to a marriage, the term “prenup” is generally used to describe these agreements for married or de facto couples.

In Australia, for a prenup to be legally binding, it must be made as a financial agreement under the provisions of the Family Law Act. A key requirement is that both parties must have independent legal advice about the nature of the agreement and its effect on their rights, as well as its advantages and disadvantages. The lawyers involved are required to sign a statement of independent legal advice to this effect.

Prenups are better suited to mature couples in relationships later in life. They can be a valuable tool in asset protection and estate planning. They can also be used for younger couples when either or both of them have significant wealth or anticipated wealth.

They are far more effective if they’re fair, transparent, and involve careful forethought to a couple’s likely future circumstances.

Some issues to think about if you’re considering a prenup are:

• The goals you want to achieve by making the prenup.
• What are your financial goals and are they aligned with those of your partner?
• How the prenup might affect your financial arrangements on a day-to-day basis.
• Whether you and your partner are likely to have children.
• Whether you or your partner are at a significant disadvantage to the other in relation to making the agreement (such as residency status, financial position, English-speaking ability, reliance on the other).
• What might happen if you don’t have a prenup and you later separate.
• If you’re the financially stronger party, what financial provision are you willing to make for your partner if you separate? And, how this might be different if you have children, or if separation was to occur after 10 or 20 years?

In short, No. Deciding whether a prenup is right for you is something that needs to be carefully considered from several different angles. If it makes sense, there are questions to discuss about how it could operate. Then the agreement needs to be prepared in a way that is tailored to your circumstances. Asking a lawyer just to witness your prenup is a bit like telling your cardiologist you’ve got some chest pain and asking for a triple bypass.

Prenups can potentially be challenged in some circumstances. A court might decide that a prenup isn’t binding because the parties didn’t comply with all the requirements when they made the agreement. It might also “set aside” a prenup if there was duress or other unfair conduct involved in making the agreement, if there was inadequate disclosure, or if the prenup would result in hardship to a child of the relationship or to the child’s carer. A prenup can also be set aside if circumstances have changed, such that it’s impractical to implement.

The Family Law Act doesn’t say that a prenup must be fair, if it’s to be legally binding. However, it’s clear from court decisions that unfair agreements will be subject to close scrutiny if they’re challenged.

A prenup can’t be amended. To effectively change the terms of a prenup, parties would need to make a new agreement and terminate the first agreement. To terminate a financial agreement, parties need to make a ‘termination agreement’ which involves a similar process to making the prenup in the first place.