Pre-Nuptial Agreements

Pre-Nuptial Agreements or “Pre-Nups” is a term that has grown out of the American Family Law system. These Agreements are made between intact (married/defacto) couples but which state how their assets are to be divided in the event of a future separation.  In Australia they are known as Binding Financial Agreements or BFA’s for short. The Agreements can be made either before or after the relationships begins.

By signing a BFA, the relevant couple invoke provisions in the Family Law Act which remove the power of a Family Court Judge to decide how their assets should be   divided in the event of a separation and instead specifically and expressly prescribe how their assets will be divided according to the terms of their Agreement.

There can be many advantages in preparing a BFA but the main one is that it allows the couple to avoid a one size fits all outlook which comes from the provisions of the Family Law Act (as applied by Family Court Judges) and instead allows the couple to come up with their own rules about what might be a fair property division between them.

Other advantages of BFA’s are that they eliminate all of the cost and risk that typically surround a relationship breakdown. The costs typically centre on hiring the lawyers which can be anywhere from $3,000 to $120,000 for a standard case and as for risks, the fact that we have an Appeal Court is proof that Judges do get it wrong often and even when Judges get it right, high toxicity levels between spouses at the point of separation can sometimes provoke an “all or ashes” attitude.

If the Agreement is to be legally binding however, there are a number of very important technical requirements that must be satisfied. If not, the BFA will be invalid and unenforceable unless a Court subsequently rules that any noncompliance can be excused.

Couples who typically are attracted to BFA’s are persons who are going into second or third marriages/relationships where each person is independently financially secure, neither would need to have recourse to the other person’s assets in order to support themselves in a future separation scenario and both typically also have children to previous relationships for whom they would seek that their assets be provided for exclusively. Another category of cases is where one member of the new couple holds significant wealth whereas the other person has only minimal assets.

Typically, BFA’s are drafted for simplicity and will expressly identify the assets which each member of the couple brings into the relationship stating that those assets are then to be retained by that person at the end of the relationship. Some couples however do not have the luxury of being able to keep all of their finances completely separate and consequently find themselves needing to pool their assets into the joint purchase of a home and/or some co-borrowings.  Inevitably, these arrangements have many different combinations and permutations and can include, unequal cash contributions, or even a situation where the “cash” contribution from one spouse is sourced from a bank loan which is to be secured against the property and jointly guaranteed by both spouses.  A well drafted BFA that considers all the “what ifs” can still stretch to accommodate these arrangements.

An important feature of the Agreements is to note that they remain permanent and binding and cannot ever be terminated unless both spouses go through the process of preparing a “Termination Agreement” which must cover exactly the same protocols as creating the Pre-Nup in the first place.  It is therefore for example not possible for the spouses to simply agree to “tear the Agreement up” between themselves.  This feature is important to understand because even if the Agreement is considerably unfair by one party, it will remain binding upon that party no matter how long the parties remain together.

Even in situations where the parties might be entering into an Agreement which at some stage in the future might be considered to be unfair, there are some strategies that can be used. For de facto couples, for example, the current law states that if the couple is to marry, the act of marriage automatically revokes the Agreement.  The parties therefore have the ability to terminate their Agreement without having to go to the expense of preparing a “Termination Agreement” by simply entering into a formal marriage.  In other cases, the Agreements can be drafted with what is known in commercial contracts as a “sunset clause”.  This means that the Agreement for example, could be stated to self-terminate after a designated period of say 7 years (or shorter or longer periods depending upon the couples’ particular preference).

Other features which can be included into the Agreements are parallel agreements that prevent either couple from challenging their respective estates should one or other die unexpectedly. The drafting of an agreement in this area again, however, is very technical and should not be attempted by persons who are not thoroughly trained in undertaking this style of work.

A well drafted Agreement therefore is certainly very much “worth the paper it is written on”.  However, when it comes to BFAs, only properly credentialed Solicitors who are well practiced in doing this type of work should be engaged.

Michael Zande is a Queensland Law Society accredited family law specialist with over 25 years experience in the field. He is the principal at Zande Law Solicitors, Suite 7, Norwinn Centre, 15 Discovery Drive, North Lakes.  To contact Michael for advice phone 3385 0999.
