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Pre-Nuptial Agreements – What could go wrong?

You may know that since December 2000, binding pre-nuptial Financial Agreements have been able to be made under the Family Law Act.  These can now apply to married and de facto couples.  Financial Agreements are designed to prevent future claims being made in Court for property settlements and maintenance for a partner (but not to prevent child support claims).

In a property dispute, the Court looks at the current asset pool, the contributions made to that pool, the future needs of the parties and the general justice of the proposed distribution.  If a partner cannot support themselves without government assistance and their ex has some surplus in their budget, a spousal maintenance claim may also succeed.

A Financial Agreement can only guess at these factors if it is made prior to a relationship.  There must be a loss of flexibility when entering a during- or pre-marriage Financial Agreement.  It is hard to estimate the value of non-financial contributions in drafting an Agreement, so weight tends to be given to financial contributions by default.

The manner of entering the Agreement can affect its enforceability.  Presenting the Agreement the day before the wedding and saying, “sign this or the marriage is off” may be an illegitimate amount of pressure.  Failure to disclose your financial position before signing and other matters could make the Agreement unenforceable.  Reliance on Government assistance can mean maintenance provisions do not apply.

Once an Agreement is in place, it must be considered throughout your relationship.  For example, a Financial Planner unaware of your Agreement may suggest that assets be placed in your spouse’s name, with disastrous results upon separation under the terms of your Agreement.

It should not be a surprise that many Financial Agreements are disputed in Court, and a significant number are overturned.

However, if an Agreement is properly drafted and separately certified by independent solicitors, and the proper disclosure of each party’s finances is made, a Financial Agreement can eliminate the uncertainty and expense of a long Court dispute.  It can protect assets held prior to the marriage, which may be especially important for children born prior to the relationship.  There are many issues to be taken into account.

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