Key Provisions to Include in a Prenuptial Agreement
Prenuptial agreements are becoming increasingly sought after in Australia, as more people see the value in creating a plan for how finances and assets would be distributed in the event of a separation with their partner. In this article, we’ll look at what prenups cover, who they’re available to, and what the key provisions are for a prenup to be legally enforceable.
The case for prenups
Prenups (officially termed ‘Financial Agreements’ in Australia) effectively let you opt out of standard property laws, and instead establish your terms for how your shared assets will be divided if your relationship ends.
The benefit of a prenup is that it can save you the trouble of working out how assets and finances are distributed at the point of separation, when relations between you and your partner might be strained. Whilst nobody wants to think their relationship will sour, it can save a lot of grief if matters are sorted out before entering into a marriage or de facto cohabitation. Many people prefer to have a prenup, as it creates clarity between partners around assets and finances, and can dispense with some of those uneasy feelings surrounding finances that commonly arise between partners.
Prenups need to be prepared correctly, otherwise they may not be legally enforceable. Several provisions must be met for a prenup to be effective if you separate.
Who can get a prenup/postnup?
Once known as a Binding Financial Agreement but now officially termed “Financial Agreement”, prenups are available to those entering into a marriage or a de facto relationship. This Financial Agreement can also be entered into during the marriage or de facto relationship (after cohabitation commences), which is regularly termed as a postnup.
What does a Financial Agreement (prenup/postnup) cover?
A prenup/postnup can deal with a wide range of financial aspects of a relationship, such as investments, debts, inheritances, property division, and spousal maintenance, however you and your spouse or de facto essentially decide what your agreement does or does not include, within certain parameters (for example, provisions relating to child support or child custody can’t be included as these are included in a Binding Child Support Agreement).
What key provisions must be included in a prenuptial/postnuptial agreement?
The following provisions must be met when creating a prenuptial agreement. If essential provisions are missing, the prenup is weakened, and may not be legally binding. Note that even in some circumstances, a prenuptial agreement may be overruled, however the more rock solid the prenup is in its creation, the more likely it is that it will be enforceable at the time of separation.
Key provisions:
1) Both parties should obtain independent legal advice from separate lawyers before signing a prenup or postnup. This ensures that:
Each individual is fully aware of the implications of the agreement they’re entering into.
Each individual can hear from a legal expert about potential advantages and disadvantages in their prenup draft, and suggest amendments to the agreement to make it more fair.
The agreement has been overseen by a legal advisor to ensure it will be valid and enforceable in the event of a separation.
The agreement may be drafted by a lawyer in order to ensure it covers all the necessary topics.
2) Both parties must fully disclose their assets, liabilities, income and financial resources.
For this Financial agreement to be enforceable, each party must fully disclose their financial circumstances. If financial details are left out, it could be deemed that the binding financial agreement was obtained dishonestly, and it might be deemed invalid.
Note that just because something is disclosed, it doesn’t necessarily mean it will end up as part of the asset pool to be divided up if parties separate. But all information must be disclosed so that the prenup is comprehensive.
For more on disclosure, read The Importance of Financial Disclosure.
3) Both parties must agree on what assets will and will not be considered in the asset pool when parties separate. This means that not every asset will be shared, but instead, there is an agreement at the time the prenup is signed where certain assets are quarantined.
4) A Financial Agreement (prenup or postnup) cannot contain terms regarding child custody or support matters.
5) The agreement must include a declaration of separation, however this document does not need to be signed, unless the couple proceed with a separation.
If a separation does proceed, at least one of the parties must sign the separation declaration for the prenup/postnup to come into force (note that both parties do not need to sign at this stage for the prenup to be in effect).
6) Both parties must sign the prenup before a witness. (If it is not signed by one of the parties, it is not considered valid.)
7) The prenup must include an attached statement from each of the party’s lawyers declaring that independent legal advice was given relating to the consequences of the binding financial agreement.
8) Each party must enter into the prenuptial agreement voluntarily. If there is any coercion or duress, the prenup may be considered invalid.
Sunset clauses
Whilst Financial Agreements like prenups are valid indefinitely, you may include a clause stipulating that your agreement is only valid until a certain date. This is known as a ‘sunset clause’. At the point of time that you reach the date outlined in the sunset clause, the prenup becomes invalid.
If you wish to continue the prenup agreement beyond the date on the sunset clause, you can either present the prenup agreement to your respective lawyers again, with a request to extend the date, or change the prenup so that it continues on an indefinite basis. Alternatively, you may wish to change terms in your agreement, in which case again, you would revise the existing prenup, with independent legal advice for each partner.
When to update a prenup
It is a wise idea to update your Financial Agreement if there have been significant changes in your circumstances. Changes could include things like:
You’ve had children together
You or your partner’s health or employment circumstances have changed
You or your partner are set to receive, or have received, a financial windfall, such as an inheritance
You or your partner have entered into a business, and the other partner wants their financial interests protected.
There are a range of other circumstances that would warrant a revision of your agreement. It’s best to consult with an independent lawyer to ensure that everything is covered in your revised agreement, to ensure that it is binding.
Can a Financial Agreement (prenup or postnup) be challenged?
These Financial Agreements are reasonably rock solid, provided that they were prepared following strict requirements, however they can be challenged in the following circumstances:
If either party didn’t receive independent legal advice before signing the agreement
If the lawyers for either party have not included a declaration that they provided legal advice regarding the implications of the Binding Financial Agreement.
The agreement was not made in writing, and was not signed by both parties, and witnessed.
If it is found that one or both parties failed to fully disclose details about their financial situation, assets and liabilities.
If there was any ‘unconscionable conduct’ or ‘unfairness’ in the creation of the prenup. For example, if one party signed the agreement under duress or undue influence, or if one party was particularly vulnerable.
If circumstances have changed significantly since the prenup was signed, such as those circumstances listed above, and the prenup is no longer considered relevant or fair.
Are prenups/postnups expensive to obtain?
Both parties in a relationship are required to get individual legal advice before signing a Financial Agreement, so legal costs are incurred. However, a properly constructed Financial Agreement can save both parties a lot of money in lawyer fees in the event of a separation.
You can also save some back and forth between you and lawyers if you use a professional separation service like Simple Separation for your prenup or postnup. We work with you to ensure you have all the information you need to create a prenup, and have a number of templates that are helpful to use when constructing your prenup. We then match both you and your partner with independent lawyers from our trusted pool of independent legal professionals. We do this for a fixed fee, so from the beginning to the end of the prenup process, you know the cost.
In Summary…
Prenups or postnups, known as Financial Agreements, provide a lot of certainty to couples when entering into marriages or de facto relationships. Provided your agreement is correctly constructed, and that the key provisions are met (chiefly, that the prenup or postnup agreement is not made under duress or undue influence, that you both receive independent legal advice, and that you both fully disclose details of your financial circumstances), then this agreement is a useful way to protect your interests in the event you separate with your partner in the future. Prenups/postnups can be overturned, however this is made less likely if the agreement meets the key provisions, and is amended when the couple’s circumstances change.
For more information on prenup and postnup services at Simple Separation, contact us for a free consultation.