Prenuptial Agreements (Prenups)

A prenuptial agreement, also known as a Binding Financial Agreement, allows you to enter into an agreement with your partner and set your own rules for the division of property in the event of separation.

You don’t need to be contemplating marriage to sign a prenup.

What does a Prenup do?

A prenup is the cheapest, most flexible, and most effective way of protecting assets from a partner.

If there is no prenup in place at separation, all of the financial resources available to the parties are included in the asset pool available for distribution by way of property settlement.

In other words, if you purchased an asset, say a house, and you had significant equity in that asset before commencing the relationship, depending on the length of the relationship, all of that equity may form part of the asset pool available for distribution.

A prenup can also protect past and future inheritances, gifts from family members, and trust distributions.

For prenups to be valid, they must be in writing and signed by both parties in front of a solicitor after both parties have each received separate, independent legal advice.

The parties cannot use the same solicitor.

A prenup ought to involve some very careful thinking and should be flexible enough to allow each of the parties to evolve.

What is fair at the start of a relationship may be unfair later in the relationship, particularly if one party has stopped working to raise children or moved cities to support their partner’s career.

If you already have a prenup and it has been in place for several years, it is recommended you review it regularly to ensure that it is keeping pace with any changes in your relationship.

Can a Prenup be set aside?

A prenup may be set aside by a court if, and only if, it is satisfied that:

It was obtained by fraud (including non-disclosure of a material fact).
A party entered into the agreement to defraud or defeat a creditor of the party.
A party entered into the agreement to defraud another person who is in a de facto relationship with one of the parties.
The agreement is ‘void’, ‘voidable’ or unenforceable.
It has become impractical for the prenup (or part of it) to be carried out in circumstances that have arisen since the agreement was entered.
There has been a ‘material change in circumstances’ since entering into the agreement relating to the care, welfare, and development of a child and a party will suffer hardship.
A party engaged in ‘unconscionable conduct’ with the agreement.
A ‘payment flag’ is operating on a superannuation interest covered by the agreement; or
The prenup covers at least one superannuation interest that is an ‘unsplittable interest’.

Terminating a Prenup

A prenup can be terminated:

If the parties include a provision terminating the first prenup in a subsequent prenup; or
By the parties entering into a ‘termination agreement’ in certain circumstances.

Is a Prenup valid after death?

Interestingly, a prenup does not stop operating or become invalid after a party’s death.

It continues to operate through the administration of the deceased’s estate and is binding on execution or administration on behalf of the deceased’s estate.

What happens if a Prenup is set aside or terminated?

If a prenup is set aside or the parties enter into a ‘termination agreement’, either party may commence proceedings for property settlement and/or maintenance as though the prenup never existed.

This may have significant consequences for the parties.