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What is a Prenup? Why Should I Consider One?

what is a prenup

What is a Prenup? Why Should I Consider One?

Family | Podcast

The term prenup is often associated with media coverage of newlyweds who are both rich and famous, who want to protect their personal assets in the event that the relationship fails, but do they have any applicability in Australia?

To find out, in this podcast, Vicki Jackson, an Accredited Family Law Specialist and Director at South Geldard Lawyers answers the question.


Dan:  Vicki, first off, what is a prenup and, secondly, are they relevant for our Australian listeners who may be contemplating marriage?

Vicki:  Dan, a prenup is what the law refers to as a financial agreement, and basically it enables people to set out, in a written agreement, how they will deal with their property in the unfortunate event that their marriage or relationship breaks down. Now, the agreement allows for parties to agree on dividing up their property on separation, in a way which may not necessarily reflect a division of property according to the Family Law Act, so there’s scope there for people to be a little bit novel in about how they’re going to handle their affairs.

Vicki: But the interesting thing about a prenup, or a financial agreement, is that it is innately different to any other agreement we might sign because we are trying to deal with property, about which we may or may not even own at this stage, and we’re going to deal with it at a time, if ever, at a time unknown, in circumstances also unknown. So whilst you can try with … I should say, you know, without the ball to gaze into, it’s very difficult to know where people might be at any given point.

Vicki: So the other novelty about the agreement is that before anyone signs them, they must receive legal advice, and the lawyer giving that advice must provide a signed statement, not only to their client, but also to the other party, where they state that they have given advice to their client about the effect of the agreement, and the advantages and disadvantages of their signing that agreement.
Vicki: So you can see it’s entirely different to, for example, you might go off and buy a new car, or you might sign a contract to buy a house. They are an agreement, and they are an agreement in writing, but innately very different to anything else that we might do in our lifetime.

Dan: So, Vicki, they’re obviously relevant in Australia. I mean, we do hear about them often in the United States.

Vicki: Yes. They’ve been relevant in Australia since about 2000, and I guess one cap doesn’t necessarily fit all, but I believe that the prenups are very useful for mature couples in particular, where they’re past childbearing age, each party might have property, maybe wanting to ensure that their individual property is preserved for their children after their death.

Vicki: To that end, there’s an added benefit, in that the state court will recognise, and has recognised, at least what the parties agreed upon, and that’s very relevant if one of those parties, after death, should make an application to receive more out of their deceased spouse’s estate. So I think they’re very, very useful in those situations.

Vicki: As to whether the document is binding, well, yes, they are binding, provided that certain formalities are followed, and one of the important things, of course, is the prerequisite legal advice. It’s a lawyers job to make sure that those prerequisites are followed.

Vicki: The other very important thing is that both of the parties must make a full and frank disclosure to the other about what they own. So, as a starting point, I always say to people they must be prepared to accurately identify and show their spouse or potential spouse exactly what they’re worth, because it necessarily follows that if you’re asking the other party to give up something, or to accept property in the future, then they have to put all their cards on the table, so that they know exactly what they’re giving up.

Vicki: So I guess, again, it’s not like a commercial deal. You’ve got to say, “Hey, honey. This is what I’m worth. Knowing that I’m not going to let you have 50%. This is what you might get.” Now, a lot of people have said to me that I’m terribly unromantic, and I think, to a certain extent, that has been a problem in people embracing prenups, because they really aren’t very romantic, are they?

Dan: No, that’s right. And I’m assuming in that context, that launching a conversation about a prenup the day before marriage isn’t a wise thing to do?

Vicki: Absolutely not, and possibly to answer your second question, do prenups work, I think it’s important to go back to the legislation and just see what makes them fail because it’s those hoops that people have got to get over to ensure that their particular prenup does work. I often liken it to … it’s a bit like a motorcar. Of course, they work, but there’s certain things you’ve got to do. You’ve got to put oil in them, and fuel in them, and you’ve got to service them, and do your best to keep it on the road.

Vicki: I think that ensuring that a prenup works, we need to just have a look at the grounds in the law that allows them to be set aside, because the court does indeed have power to set aside a financial agreement, and of course you could imagine the situation that once parties separate, there’s often one party, and that is usually the least financially secure party, who tries to find a way to set aside the agreement.

Vicki: Now, the law sets out a list of grounds which, if proven, will be fatal to that agreement, so that … I won’t labour through all these grounds, but it might be interesting to just talk about some common examples. Now, the most obvious one, where an agreement can be set aside, is where it has been obtained by fraud, and that fraud includes a non-disclosure of a material matter. For example, if one spouse party is saying to the other, “Well, if we separate, we might divide our property equally,” but what that spouse is not telling the other is that they’ve got some substantial interest, shares in a company, or a substantial beneficiary account in their parents’ family trust that they’re not telling the other party about, obviously that’s a non-disclosure, which would then lead that agreement to being set aside.

Vicki: The very significant ground for young couples is that, since they made their agreement, there’s been a material change of circumstances which relates to the care, welfare, and development of a child of the marriage. If it can be shown that, as a result of the provisions in the agreement, that child or the child’s carer will suffer hardship, then the agreement can be set aside.

Vicki: That’s why I, at the beginning of our chat, I talked about prenups being useful for more mature people, because if you just think about a young couple starting out, neither have got too much, perhaps one is anticipating an inheritance, and that might be the only property that this person will even accumulate. Well, down the track, they receive their inheritance, perhaps the agreement suggests that the other party won’t receive any entitlement from a property pool which includes that inheritance, then you could just envisage that if that other party is the carer of the child, that it’s simply not going to work.

Vicki: Simply, for young people, I don’t think it’s a proposition, depending upon whether or not they have other property. But one thing about a prenup is that one hat doesn’t fit all, so anyone who’s considering it really needs to take some considered advice about whether a prenup suits their special circumstances, and-

Dan: Vicki, does it always apply in relation to marriage? I’m just sort of thinking-

Vicki: No.

Dan: … for those people that are actually contemplating their defacto relationship, does it apply as well?

Vicki: Yes, absolutely. It applies to defacto relationships as well, including same sex couples. So it applies across the board, and these precautions that we’ve got to take in ensuring that they’re bulletproof really applies to all of them.

Dan: Gee, getting advice just makes common sense with this. You wouldn’t dare do it without it, would you?

Vicki: Well, you really can’t, because you can’t enter into an agreement-

Dan: Without the-

Vicki: … unless-

Dan: Yes.

Vicki: … you’ve got the legal practitioner who gives you your statement, and it’s not a token statement. It has to be very considered advice.

Vicki: The other thing that’s very important is the timing of the advice. Simply, don’t come in the lead up to the wedding because that could be construed as unconscionable conduct and therefore set up a ground to have it set aside. Just consider the idea that the invitations are out, the venue’s booked, there’s dresses and suits hired, and all the fanfare, and the week leading up, one spouse says to the other, “Oh, and by the way, I’d like you to sign this agreement.”

Dan: Yes.

Vicki: It’s really placing the other person at a disadvantage and mostly they don’t say no.

Dan: So the take-home message-

Vicki: That prenup would not work.

Dan: Yes. I mean, the take-home message undeniably is get advice from a family lawyer Rockhampton, better still an accredited family law specialist that knows family law, and do this well and truly, you know, well before you’re thinking about the marriage.

Vicki: Absolutely. Absolutely. Now, and some people say, “Oh, but if I ask them to sign that, they mightn’t marry me.” Well, I’m afraid I usually say, “Well, I think you know where you stand.” You know, I think one has to be a little bit realistic.

Vicki: But amongst that world of negativity that I’ve touched upon, I think it’s also important to understand two very important aspects, as to why these agreements work. And again, provided they’ve done their homework, their timing’s correct, they’ve got the advice, they’ve put on the table this is everything I’ve owned, this is what I may own, provided they’ve done all that, there’s two aspects that I think are absolutely excellent to ensure that prenups work, and they are these; that, firstly, the agreement will not be set aside simply because the proposed distribution of property is not fair. Now, when you compare that to any other sort of agreed outcome, for example, an agreement that is made a consent order of the court, the court has to be satisfied that the result is just and equitable. Here, with a prenup, you can anticipate a distribution which is not fair.

Vicki: And the other important factor is that, for parties not to be bound by their prenup, they must sign another document called a termination agreement. And again, the parties and the document are subjected to the same rigours and the formalities of entering into it as the original agreement, including the requirement for legal advice before signing it. So, to me, that avoids the problem about, oh, but he or she said to me one night on the veranda, “Oh don’t worry about that.” I think those two aspects are very important in ensuring that prenups do work.

Dan: Vicki, thanks for joining me.

Vicki: Thank you.