We’ve all heard of prenups. They’re those things that the rich and famous enter into before they get married or start living together to protect their assets should the relationship go south. They’re not just for the wealthy, though. Any couple intending to marry or cohabit can enter into a prenup.
Prenuptial Agreements ExplainedPrenuptial agreements are financial arrangements between couples intending to marry or enter into a de facto relationship. The family law system of Australia calls them Binding Financial Agreements. They are essentially putting a plan in place in case the relationship fails. Of course, if you don’t have a prenup, you can always draw up an agreement regarding the division of debts and assets at any time during your relationship. You can even enter into such an agreement once the relationship is done. These agreements can include much more than just the division of assets; that is, the bare minimum. Prenuptial agreements also have any debts or liabilities from the partnership. If the relationship fails in the future, child support arrangements can also be included in a prenup.
Advantages of Prenuptial Agreements
- Both parties can be clear on what will happen should the relationship not stand the test of time and what they will take with them when they leave the partnership.
- How many resources and assets will be split are clearly defined in the agreement, which means the Family Court won’t change the agreement or negate it. When drawing up the contract, you can also put measures in place to deal with potential disputes before they occur.
- Prenups allow both parties to make plans for the future without worrying about what might happen.
- Prenuptials carry the same tax benefits as those of Court Orders, meaning both parties can save substantially on Capital Gains tax and state transfer duty.
- Nobody is privy to prenups than the two parties involved and their lawyers, whereas court proceedings can call upon friends and family to witness them.
- It doesn’t usually take long to prepare and enter into a prenup once the parties agree on terms. A couple of weeks and the job is generally done. Of course, where the parties can’t reach an agreement regarding the division of assets and finances, the process can become much more lengthy and expensive, especially if they have to go through dispute resolution in Court. In that case, it can take months or years to finalise.
- Prenups can also come in handy when estate planning. Knowing the breakdown of assets allows people to plan more successfully for their offspring.
Discussing PrenupsYou shouldn’t feel bad for wanting to discuss prenups before tying the knot. Contrary to what others may think, it doesn’t mean you don’t believe in your relationship. On the contrary, a prenup is planning for the worst, like insuring your car or home. Like your house or vehicle insurance, the prenup won’t be enacted while the relationship remains strong. Discussing terms at the beginning of the relationship allows each party to relax, knowing they have opened themselves up to reveal what is essential. In addition, they know what will happen should they later decide to terminate the partnership. The important thing is to discuss the prenup in the same way you would discuss drawing up a will having children and getting married. You should pursue a prenuptial agreement if you belong in any of the following situations:
- You are remarrying and want to retain assets from your previous marriage for your children from that union.
- Your de facto is moving into your property.
- Should the relationship fail, you don’t want the matter going to Court and getting messy.
- Your assets far outweigh your partner’s before teaming up.
- You have a family business or future inheritance to protect.
Prenups And ChildrenAny children of the relationship are the main consideration when drawing up your prenuptial agreement. You may not know if you will have children when you draw up your agreement, but it is important to make provision for possible children in the division of assets. If you don’t mention it d you end up having children, later on, the agreement will not be legally binding. Provision for child support can legally be made under the Family Law Act 1975, but only if the child has been born and named and the exact maintenance amount is stated in the agreement. If not in the child’s best interests, the Court can override the terms of the financial agreement.
How Are Cohabitation Agreements Different To Prenuptials?While cohabitation agreements are for couples who intend living together or are already cohabiting, prenuptials are reserved for those specifically intending marriage. What Is Needed To Make A Prenup Valid? Prenuptial agreements are private contracts and must comply with specific requirements to be valid. Those requirements include:
- The contract must be in writing, signed, dated and witnessed.
- Complete disclosure of all liabilities and assets from both parties must be provided.
- Both parties must have had separate independent legal advice.
- Parties must have signed the agreement without undue influence, coercion or duress.
- The terms of the contract must be permitted legally.
PropertyAnything you own is property, including real or personal property. Real estate and land interests come under the banner of real property, while personal property covers just about everything else.
- Year, make, model, VIN for all vehicles.
- Property type, full address and legal description of real estate.
- Financial institutes, account names and types for funds.
- Describe possessions, such as jewellery and art, with as much detail as possible. Taking a photo doesn’t hurt, either.
Listing DebtsAny monies owed are debts or liabilities. If you are obliged to pay someone money, it is a debt. When a relationship breaks down, debts are generally dealt with similarly as property and assets. They are deemed to be individual or shared debts. Separate debts are those that won’t be divided if the relationship folds. These are typically debts incurred before the relationship by one party or where one person agreed to be responsible for the debt. Shared debts are those that are split straight down the middle. When listing your debts, you can choose the option to specify below or in an attachment.
Assessing Shared Debts After A Marriage BreakdownThe most common ways to assess debts when a relationship breaks down are:
- Parties agree to split the responsibility for the obligations equally, 50/50; and
- Parties agree to base the responsibility for the debts on their individual financial contributions.
Dependent ChildrenWhat does the term ‘dependent children’ mean? Simply that the children depend on their parents to meet their needs. The length of dependency can vary, but a child is generally considered to be a dependent of their parents until they are at least 18 years old. In some cases, the Courts extend the age to include children attending post-secondary study. In that case, they can be classed as a dependent until they complete their first degree. Offspring with additional needs who are over 18 years of age may also be granted extended financial support. It is important to remember that the family court when reviewing prenuptial agreements which include dependent children, will base their decisions on the best interests of the child or children. Possible Downsides To Prenups With both parties needing legal counsel from their own lawyer, drawing up a prenup can prove a costly enterprise. It is possible that a prenuptial contract and pursuant financial agreement can seem to favour one party over the other. This is typically seen when one party has more assets than the other, which gives them a level of control in the relationship. Relationships are unpredictable, so trying to formulate an agreement prior to the relationship taking off can be very difficult. Drawing up a prenuptial contract involves anticipating possible situations that may or may not eventuate down the track and trying to stipulate how to manage them. There are many variables to consider, including how many children you anticipate having instead of how many you actually have and whether the amount of money you had agreed to when you had the prenuptial drawn up will actually be sufficient if the partnership breaks down.
1. What Legislation Should I be Aware Of?Answer: The Family Law Act 1975 talks about financial agreements made by married couples in sections 90B-90KA. Sections 90UA-090UN of the Family Law Act relate to de facto, including same-sex couples.
2. What can I Cover in My Prenuptial Agreement?Answer: Your prenuptial agreement outlines what will happen if your relationship breaks down. It is a financial agreement between two individuals planning to marry or cohabit that is legally binding. Whether through separation or divorce, this agreement determines how assets, including property and finances, will be split between the interested parties. It can not only protect assets such as cash, superannuation, pension entitlements, investments, inheritances and real estate, but details any debts, who is responsible for them and how they should be paid. 3. Can a Prenuptial Agreement be Set Aside? Answer: Your prenuptial agreement can be overturned if the Family Court determines that:
- The prenuptial agreement was obtained fraudulently. For example, one or both of the parties failed to disclose all of their assets.
- The binding requirements weren’t met. For example, independent legal advice was not obtained.
- The situation has materially changed since the agreement was drawn up. For example, provision may not have been made for any children of the relationship and children were produced.
- A party of the agreement was involved in conduct unbecoming or unconscionable in the drafting or signing of the contract. Signing on the wedding day, for example.
- For interest payable under the prenuptial agreement.
- To award damages.
- To cause the prenuptial agreement to be terminated.
- That all or part of the prenuptial agreement be enforced as if it was an order of the Court.
4. What Should I Leave Out of The Prenuptial Agreement?Answer: The agreement is a legal contract, so anything agreed to must be lawful. That means you cannot include in your agreement anything unlawful.
- You can’t agree to anything affecting a third party’s interests without written consent from that person.
- Your prenuptial agreement cannot include child custody or access because the Court will make any decision regarding the children with their best interests in mind.