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, which ensures that your personal finances and assets are protected in the event of separation.
What is a Prenup?
In Australia, a prenup is referred to as a Binding Financial Agreement (BFA). A BFA is 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 end. Without a BFA, the division of finances in a separation is determined by the Family Law Act (No 53) 1975 (Cth).
A BFA 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
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
- During the marriage or de-facto relationship
- After separation following a marriage or de-facto relationship.
Benefits of a Prenuptial Agreement
A prenup promotes open communication and transparency about the financial circumstances of the relationship. Other practical benefits of a prenup 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 BFA is usually more time efficient and cost effective than working out a final division after separation.
How is a prenup enforced?
As a BFA operates to oust the jurisdiction of the Family Court, there are many requirements that must be fulfilled to ensure the BFA is 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 prenup or provided a statement
- Each party must have signed the prenup voluntarily.
- The prenup must contain a complete disclosure of each party’s financial standing.
The validity and effectiveness of a prenup is determined by the court. The court may set aside a prenup 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 please contact us on (02) 9963 9800 or via our online contact form.