It may not be the most romantic idea, but prenuptial agreements offer peace of mind in a variety of circumstances.
As Summer relationships blossom, I begin to receive an increasing number of enquiries about pre-nuptial agreements. Often, the enquiry begins with a client asking if prenups are worth the paper they are written on? Having prepared hundreds of these documents for clients over the years, I can quite confidently confirm they are worth having – if prepared correctly.
Many people view such documents as being unnecessary, citing reasons such as their relationship is different from those of others, their love for each other is unending or a raft of other reasons. Unfortunately, I can counter their optimism by having a large number of clients at any time, all of whom thought the same way, but are now involved in a family law dispute.
The Family Law Act was amended to include Pre-nuptial agreements, more correctly referred to in Australia as a Financial Agreements from late in 2000. Therefore, prenups are not a new concept or gimmick in Australia. In fact, prenups have a long history of providing the highest level of protection available in the event of separation, other than to simply live alone. Importantly, prenups are now also available to those in, or intending to live in, a de facto relationship.
However, for a prenup to be binding and enforceable, it must strictly comply with the technical requirements of the legislation. Amongst these is the requirement that each must have independent legal advice. This is to ensure that each party has been advised as to the effect of the agreement on their rights and the advantages and disadvantages to the client entering the agreement. It also helps to overcome any allegation one party was forced into the agreement or did not understand their rights and obligations.
The requirement of independent legal advice is particularly important as parties entering a prenup are effectively contracting out of rights they would otherwise have to claim on property in the event of separation. Typically, such rights to claim on property would include real property, business interests and superannuation (and the mythical wine collection – who has one?). Accordingly, prenups should not be entered lightly and should never be dumped on a person on the eleventh hour or given as an ultimatum to separation.
Rather, prenups should be entered after the parties have given it careful consideration and had open discussions with each other about the purpose and intention of it. Although counter intuitive, prenups are often entered by parties based on their love and respect for each other and their desire to avoid conflict and to be able to move on with financial certainty in the event of separation.
It is my experience the vast number of people entering prenups fall into four categories, namely:
Those who have been married before and want to avoid conflict if the relationship ends. Such people are no stranger to the high emotional and financial costs associated with family law proceedings, and not surprising the most common category.
- Often interrelated with category one above, are those that have children from previous relationships and want to ensure their assets are protected and remains intact for their children in the event of separation. Prenups are binding on the parties’ estates and are easily and effectively dovetailed into an overall estate plan.
- Those who are slightly older when entering a relationship for the first time but want to protect their accumulated wealth; and
- Those who have an interest or entitlement to family interests (such as businesses or farms) and seek only to quarantine those assets in the event of separation.
The category of people who are conspicuously absent above, are younger people. This may be explained by the fact they often have little or no assets to protect currently and don’t appreciate that they will accumulate wealth over time. Perhaps people in this category should give some thought to why so many people entering second, third or fourth relationships enter prenups.
If you decide to enter a prenup, it is important to ensure that it is maintains a quality of fairness if the relationship is long lasting, one party receives a windfall or inheritance, in the event separation occurs when a party has an illness or injury, there are children, one party’s vastly superior income earning capacity and the like. It is seldom (if ever) a good idea to enter an agreement that fails to consider any of these vicissitudes of life and makes no provisions these events. The agreement needs to be well considered and fluid enough to roll with the punches and strokes of luck life throws your way.
So, to answer one of the most common questions I receive, yes prenups are worth the paper they are written on – if prepared by an experienced family lawyer, for the right reasons and with foresight.