PRE-NUPTIAL AND PRE-COHABITATION AGREEMENTS
Under the Family Law Act, Binding Financial Agreements (BFA’s) can be made:
- Prior to a marriage or de facto relationship commencing;
- During a marriage or de facto relationship; or
- After separation.
This article is about BFA’s made prior to a marriage or de facto relationship. These agreements are often colloquially referred to as “pre nups” or pre-nuptial agreements.
Do you need a pre-nuptial agreement?
Clients commonly make appointments stating they need to have a BFA or “pre nup” drawn up. They have often been told this by a well-meaning family member, colleague, friend or accountant. These clients assume that this it is “standard” to have a pre-nuptial agreement or that getting married or starting a de facto relationship without one is a big mistake. However, in our experience, these assumptions are frequently unwarranted and made without the client obtaining legal advice specific to his or her circumstances.
To make an informed decision about whether you need a pre-nuptial or pre-cohabitation agreement, you should obtain legal advice from a family law expert. An experienced lawyer will explain to you the pro’s and con’s of making a BFA and help you decide whether the time and cost involved is warranted.
The first thing you need to know is how property is divided after separation under the Family Law Act (FLA). See our page about determining property entitlements for information about the process involved. Once you understand how the law works, you can decide whether you would be content to divide your property according to the law. And, if not what you want to include in your pre-nuptial or pre-cohabitation agreement.
The most common scenarios when a BFA might be appropriate are where:
- One party has accumulated substantial assets prior to the relationship;
- One or both parties have an interest in a family company, trust or business;
- One or both parties owns assets with a person other than their intended spouse;
- Either party has an expectation of receiving a large inheritance;
- One or both parties have children from a previous relationship, for whom they wish to provide.
How does a BFA work?
If a pre-nuptial or pre-cohabitation agreement is made in compliance with the legal requirements, it is binding on both parties and enforceable by the courts. This means that if a separation occurs, the parties’ property will be divided as set out in the BFA instead of under the provisions of the FLA. A BFA can also include provisions which set out how the parties will conduct their financial affairs during their relationship.
What are the legal requirements for a BFA?
For a BFA to be legally binding, both parties must:
- Before signing the agreement, receive legal advice from separate solicitors about the advantages and disadvantages of making the agreement and the effect of the agreement on their rights;
- Receive a signed statement from their own lawyer confirming that the above advice has been given; and
- Receive a copy of a signed statement from the other party’s lawyer confirming that the other party has received the above advice.
Provided these requirements are met, either party can seek a court declaration that the agreement is binding and enforce its terms. Before the agreement can be enforced, however, one of the parties must sign a separation declaration. A separation declaration must state that the parties have separated and are living separately and apart and that the person making the declaration believes there is no reasonable likelihood of a reconciliation occurring.
Can a BFA be set aside?
The FLA sets out (at section 90K) when a court may set aside a BFA. Most of the grounds relate to the behaviour of one or both the parties at the time the agreement was made. The aim of the law is prevent a party entering into an agreement where the other party has committed fraud, applied unreasonable pressure or engaged in some other unconscionable conduct. The FLA also seeks to prevent parties making BFA’s to defeat claims by creditors or former spouses. There is also one ground which allows the court to set aside a BFA if, since the agreement was made, there has been a significant change in circumstances, relating to the care, welfare and development of a child of the relationship, which would result in the child or his/her carer parent suffering hardship if the agreement were not set aside.
If a court is satisfied that one or more of the grounds detailed in section 90K are proven, the court may make an order setting aside the agreement. The parties property will then be divided according to the provisions of the FLA.
The law in relation to pre-nuptial and pre-cohabitation agreements is complex and such agreements should be carefully drafted. You should engage an experienced family lawyer to advise you before deciding whether to make such an agreement and to ensure that the agreement will be binding and enforceable.