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Are you getting married in the not too distant future? Although it may seem a bit somber to think about binding financial agreements (pre-nuptial agreements) just before your big day, the fact is that 1 in every 3 marriages end in divorce, so it’s always a good idea to consider what might eventuate if the worst was to happen.
Financial agreements (technically known as “Binding Financial Agreements”, or “BFAs”), are agreements that couples enter into to specify how their property will be divided after breakdown of a relationship. Agreements entered into before or during the relationship are commonly called “Pre-Nuptial Agreements”, or “Pre-Nups”. BFA’s can be entered into by same-sex, de facto, or married couples, before, during or after the breakdown of a relationship.
For those people who have been in unsuccessful relationships before, or who perhaps have significant wealth prior to entering into a marriage, well drafted pre-nups by lawyers can be very useful and welcomed legal documents.
In Australia, the cost of a financial agreement will vary depending on the time required for legal practitioners to draft the pre-nup, advise their respective clients in relation to the financial agreement and duly execute the financial agreement. The cost of obtaining a financial agreement can be relatively low provided all parties agree to reasonable terms.
Legal costs may arise in circumstances where a party to a pre-nup later challenges its validity and/or enforceability later down the track.
In the recent case of Graham & Squibb  FamCAFC 33 (2019), the Full Court of the Family Court upheld a pre-nuptial Agreement at the considerable emotional and financial cost of the parties’ because there were errors in the drafting of the agreement that called the pre-nup’s validity into question. It is very important that parties consider engaging lawyers who are well-versed and competent in this area of the law for advice.
Financial Agreements, once entered into, do not expire under Australian law. They can continue after the death of a party to the Financial Agreement. However, a Financial Agreement can be set aside by the Court or be terminated by an agreement between both parties at any time. The time at which you enter into a pre-nup is an important consideration as it may create an environment in which a challenge to the financial agreement is mounted at a later date.
Couples can enter into financial agreement:
Financial agreements can also be entered into by couples before a de facto relationship, during a de facto relationship and post-separation.
It is recommended that parties avoid entering into a pre-nuptial agreement too close to any significant life event and that the terms of the agreement take into consideration the many vicissitudes of life.
“Prenups” or “Financial Agreements” (as they are formally referred to in Australia) are legally binding so long as they comply with the legal requirements set out in the Family Law Act 1975 (Cth) (“the Act“) and the principles established by case law.
The Act provides that a prenup will be binding if, and only if:
If you do not have a Financial Agreement (prenup/BFA), the Family Law Act 1975 governs how your assets are to be divided on separation. Section 79(4) of the Family Law Act 1975 provides that the Court will take into account, in the summary:
The Court will also be required to look at the future needs of the parties, such as the health of the parties, ability to obtain gainful employment and care of children.
A Financial Agreement is the only document permitted by the Family Law Act to oust the jurisdiction of the Court. The court has a very wide discretion in relation to property outcomes, and it can take many years for a matter to be determined by the Court at significant stress and expense. There are real benefits reaching an agreement prior to your marriage so that both parties have certainty of outcome.
A Prenup or Financial Agreement might seem like an awkward issue to raise with your partner, particularly when you are enjoying the romance of being engaged and looking to the future. However, a Financial Agreement offers both parties certainty about the future arrangements and enables you both to openly discuss your financial position and plan for all eventualities. Financial Agreements are particularly helpful if you are entering a second marriage and in circumstances where you want to protect your assets for the benefit of children from the previous marriage. They are also advantageous where one party wishes to protect assets they have brought into the relationship, such as gifts from parents and inheritance.
If you have any further questions regarding Binding Financial Agreements (previously known as prenuptial agreements) please contact our friendly team for assistance.
That decision is entirely up to you. Some situations where it might be considered include one party bringing significantly more assets into the marriage than the other party or a mutual decision by both parties to avoid courtroom proceedings, should a divorce occur.
Yes you can. Certain sections of the Family Law Act 1975 allow provisions for people who are currently married to enter into a legally binding financial agreement which concerns their assets. You can even get one after you’re divorced as a way of dividing up assets without going to court.
The provisions of the agreement must clearly cover how the assets and liabilities are to be divided and which assets must be sold and by what method as well as how the sale proceeds are to be divided.
The provisions of the agreement obviously have to contemplate and anticipate what assets will be held at the time of the separation. The proportion of the division of assets might also anticipate how property held at the time of the signing of the agreement will be divided and how property acquired after the signing of the agreement will be divided. It is not automatic that everything must be sold and proceeds divided. The parties can agree to divide things “in specie” where each can keep particular property in their sole name and maybe compensate the other for their share by an agreed formula. They should provide whether no spouse maintenance will be paid at all, or whether a specific rate is to be paid and for what period.
Usually the parties to the agreement will identify how any inheritance that may be received by either of them in the future will be dealt with, whether it is mixed in with other assets jointly held or kept separately.
If you have any further questions or would like to engage a lawyer to assist you in entering into a Binding Financial Agreement, please don’t hesitate to contact us.
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