FAQ – Family Law – Prenup

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CONVERSATION

Securing Your Rights: How does Prenup (Binding Financial Agreement) work for you?

 

Binding Financial Agreement  (BFA)  can be made any time before,  during  or after the marriage or de facto relationship of the parties. They are often colloquially known as prenups or prenuptial agreements.

Postnuptial agreements deal with the practical issue of how to establish an agreed and fair distribution of shared assets and interests if the marriage breaks down. The vital part of such agreement is to bring fairness on both parties and safeguarding their assets in a separation. These agreements are binding on the parties except where the court sets aside this on very limited grounds.  Is it advantageous? Will this help the relationship at all? You will be surprised to learn that making a postnuptial agreement can actually promote harmony by helping one or both of the parties to feel more secure in the relationship.

This Q & A touches upon numerous aspects on the topic. For the benefit of the reader, Pre- Nuptial agreement all types of Binding Financial agreements are called “Binding Financial Agreement (BFA), unless it requires clarity.

These posts are only intended as an overview on current issues that may interest you and are not legal advice. If there are any matters that you would like us to advise you on, then please contact us.

A prenuptial agreement is a written contract created by two people before they are married.  It is often called Binding Financial Agreement (BAF). This is a private agreement between the two partners at any stage of a relationship (before or after a marriage). It typically lists all of the assets and liabilities each person owns and specifies what each person’s property rights will be after the breakdown of the marriage- in other words, what’s his is his and what’s hers is hers.[1]

[1] Family Law Legislation Amendment (Superannuation) Bill 2000 (2000) 6(3) CFL 97

Divorce is simply the legal dissolution of a marriage. The divorce takes effect one month and one day after the Divorce Order is granted by the Court. You cannot remarry until then.

BFA serves as a safety net, avoiding any current or potential disagreements with regards to property distribution, spousal maintenance following separation or a divorce. It will clarify the financial rights of the partners. It can decide how joint property can be acquired or maintained and how they are distributed in case of a separation. It can protect you from your spouse’s liabilities. In a blended family, a BFA can provide for clarity in property distribution. Finally, there will be more certainty in advance on how their property and finances would be fairly distributed in the event of a divorce/separation. There is stamp duty and Capital Gains Tax relief for transactions entered into pursuant to a BFA.

Even with a BFA there can be some disadvantages due to the uncertainties because under certain circumstance a court can set aside the BFA. The court does not play any supervisory or regulatory role in entering into a BFA. Unless the parties give attention to the BFA at the stage of drafting, the BFA can be unfair for one party.

A court considers the financial circumstances of the parties at the time of the making the order and not at the time of your separation. If you have not finalised your property settlement by way of a court order or a BFA, you may face unanticipated financial consequences. For example, think of your wining a lottery or receiving a redundancy payment, after separation but before the financial settlement is finalised by court?  Similarly, there can be a downfall such a one party becoming unemployed or becoming injured and being unable to work?

A future inheritance may or may not be unknown to the parties at the time of creating a BFA but if they have an express clause stating a particular way for the future inheritance to be dealt with, that is the best way to ensure that the other former partner/spouse will not be able to make a claim to any inheritance that you may receive. Though BFAs  are not 100% fool-proof from legal challenge,  they are the best way to ensure that certain assets, such as an inheritance are protected in a future breakdown of  a relationship. If you are aware of a future inheritance, the best way to protect it is to have a BFA in place before you receive inheritance.

Yes. The BFA would continue to operate despite the demise of one party. The remaining spouse would be entitled to the property mentioned in the BFA but if the surviving spouse has no assets on the deceased’s will then the order may likely be challenged in courts.[1] A BFA not only protects couples in cases of divorce and separation but can also survive the death of a partner, making it binding upon the legal personal representative of the deceased party, for an example the executor named in the will. This is  applicable for both married and de facto couples and recognized by  Family Law Act[2],

[1] Family Law Act 1975 s.(90)(K)

[2] Family Law Act 1975 s.(90)(H) s.(90)(UK)

Yes. Although this is a private agreement which doesn’t need to be endorsed by the courts, the parties should obtain legal advice. For a BFA to be legally valid, both parties must have independent legal advice.

No, each party must obtain separate independent legal advice from a  lawyer practicing in the Australian jurisdiction.

No, It must be written and signed voluntarily by both parties.

You must collect all your financial information and that of your spouse or partner. It is difficult to give an exhaustive list, but you need to collect as much information as possible and try to prepare a full list of the following:

 

  • A list of the assets (including superannuation, businesses, pension entitlements) with estimated values.
  • List of liabilities including mortgages, expenses etc.
  • The details of the employment, salary and other income sources;
  • Most recent tax return and bank statements;
  • How their property, superannuation, spousal maintenance and child support to be divided in the event of a relationship breakdown.

You are required to disclose all the assets and liabilities. The BFA must contain a full and frank disclosure of assets, including the liabilities and their full value, of each party’s financial position. If a court subsequently finds that a party had not disclosed their full assets/liabilities, then the BFA can be set aside.

If you and your spouse have agreed on how the spousal maintenance is arranged, that can be part of the BFA. If such arrangement is to be made, you must clearly state for whose favor such maintenance (together with the amount or portion/value of a property etc.) is made. But if the BFA fails to specify who the receiver is and the amount of the spousal maintenance it becomes void.

 

Regarding the maintenance of children, only if a child has already been born and can be named, provisions can be made in the agreement. You must then state the exact amount of maintenance.[1]

[1] Family Law Act 1975 s.(90)(e)

No, a BFA cannot prevent a court from deciding the custody of the children  and determining the parties’ obligations for support of their minor children.

The parties to a binding financial agreement can overturn it themselves – by creating a new binding financial agreement or a termination the agreement.

In a new binding financial agreement, you would have to include a provision terminating the previous financial agreement.

Yes, Due to the varying nature of the assets and the BFAs, parties are generally advised to review the existing BFAs from time to time, and certainly when the individual circumstances change.

 The Court can overturn or set aside a BFA if it is satisfied on several grounds[1], which can be briefly summarised as follows:

  • The agreement was obtained by fraud
  • The parties failed to disclose of all assets and liabilities
  • Mandatory legal requirements are not met. For example, failure to obtain independent legal advice
  • There has been a material change to the situation such as birth of children of the marriage
  • If a spouse acted in a way that the court thinks his/her contact is unconscionable.

What is unconscionable is a matter for the court to decide but one can assume that if the agreement is absolutely unfair for a spouse and the circumstances shocks the conscious of the court, then the court will set aside the BFA on the basis of unconscionability.

[1] Family Law Act 1975 s.(90)(K)

If one of the parties to a marriage or de facto relationship becomes bankrupt, his or her property immediately vests in the trustee in bankruptcy. The trustees will have the power to set aside the BFA to realise the debt.[1] Basic household property, vehicles up to a certain value, tools obtained during a specified period may not be available for payment of debts.[2]  The situation of bankruptcy may require you to obtain specific legal advice.

[1] Bankruptcy Act 1996 s.(120), s.(121)

[2] Bankruptcy Regulations 2021, part 6, div 3 , Reg.27,28,29,30

If the property is jointly owned by the bankrupt spouse and the non-bankrupt spouse, the proportion of interests should be calculated. The proportion owned by the bankrupt spouse will get transferred to the trustee while the rest remains with the non-bankrupt spouse. The non- bankrupt spouse can get full possession through offering a price to the trustee or could sell the property and divide the sales proceeds proportionally.

BFC can include an agreement to deal with superannuation of either or both of the spouses. It does not matter whether the superannuation interests exist at the time of making the agreement. The part of the BFA that deals with the superannuation is called the superannuation agreement.[1] A superannuation agreement can be a stand alone agreement as well.

[1] Family Law Act 1975, s 90XH