In 2021, there were 56,244 divorces granted in Australia – the highest number of divorces recorded since 1976. With this apparent increase in separations, it is important to prepare for any eventuality before entering into a marriage or de-facto relationship. One such precaution is to enter into a prenuptial agreement, or prenup, otherwise known as a financial agreement which ensures that your personal finances and assets are protected in the event of a separation or relationship breakdown.
What is a Prenup?
In Australia, a prenup is referred to as a Financial Agreement (BFA). Financial Agreements are a legal agreement between parties in a relationship and sets out how their assets and finances will be divided should their marriage or de-facto relationship break down. Without a Financial Agreement, the division of finances in a separation is determined by the Family Courts pursuant to the Family Law Act (No 53) 1975 (Cth).
A Financial Agreement takes into account the assets and liabilities of each person in the relationship. Types of marital and non-marital assets that can be included in a BFA are:
- Spousal maintenance
- Real estate and businesses
- Insurance, superannuation and pensions
- Inheritances
It should be noted that a BFA does not cover parenting or child custody arrangements. A Child Support Agreement will outline provisions relating to child support.
When can you enter into a Prenup?
- Prior to getting married or at the start of a de-facto relationship or marriage
- During the marriage or de-facto relationship or marriage
- After separation following a marriage or de-facto relationship
What are the Benefits of entering into a Financial Agreement?
A financial agreement promotes open communication and transparency between the parties to the relationship.
Other practical benefits of entering into a BFA include:
- Security and flexibility – Parties are able to negotiate how their joint assets will be reasonably distributed. Parties are also able to secure the property they have accumulated prior to the relationship to ensure the just division of assets.
- Tax benefits – Parties are eligible for transfer duty exemptions or capital gains tax rollover on assets transferred under the agreement.
- Efficiency and cost effectiveness – Preparing a Financial Agreement is more time efficient and cost effective than working out a final division after separation.
How is a Financial Agreement enforced?
As a financial agreement enables parties to determine their property arrangements and removes the jurisdiction of the Family Court, it must strictly satisfy the legislative requirements to be valid and enforceable. Some of these conditions include:
- The agreement must be signed by all parties
- Each party must have received independent legal advice before signing the agreement or provided a statement
- Each party must have signed the agreement voluntarily
- The agreement must contain a complete disclosure of each party’s financial standing
The validity and effectiveness of a Financial Agreement is determined by the court. The court may set aside a Financial Agreement if the above requirements are not followed or if at the time of the agreement a party’s conduct was unconscionable and possessed reckless disregard for the interests of the other parties or if the acquisition of property was on fraudulent and unjust terms.
To learn more about the importance of executing an enforceable Financial Agreement and the circumstances in which a BFA may be set aside, please read our article.
To ensure your assets and property are protected in the event of a relationship breakdown, we recommend seeking professional legal advice. If you would like to discuss the creation or amendment of a Binding Financial Agreement with an experienced family lawyer, please contact Etheringtons Solicitors in North Sydney on (02) 9963 9800 or via our online contact form.