Whats a Prenup?

Whats a prenup, exactly? If you’re planning to get married in Australia, you need to know about prenuptial agreements or financial agreements. These agreements are for couples seeking clarity and security in their financial future. 

What’s a Prenup?

Prenuptial agreements, premarital agreements or Binding Financial Agreements (BFAs) in Australia, are legal contracts that outline how assets and finances will be divided in the event that the relationship ends. While often associated with celebrity marriages and high-net-worth individuals, they can be beneficial for any couple considering marriage, regardless of their financial status.

Legal Basis: Family Law Act 1975

To know more about what’s a prenup, you must understand its legal basis. Which law governs the making of prenuptial agreements? Section 90B of the Family Law Act states that financial agreements made before marriage are those that are made by:

1. people who are contemplating entering into a marriage with each other and who make a written agreement with respect to any of the matters in item (b).
2. at the time of the making of the agreement, the people are not parties to any other binding agreement (whether made under this section or section 90C or 90D) with respect to any of those matters; and
3. the agreement is expressed to be made under this section.

What are the matters included in a financial agreement? The same section enumerates the following:

1. how, in the event of the breakdown of the marriage, all or any of the property or financial resources of either or both of the spouse parties at the time when the agreement is made, or at a later time and before divorce, is to be dealt with;
2. the maintenance of either of the spouse parties:
   • during the marriage; or
   • after divorce; or
   • both during the marriage and after divorce.
   • matters incidental or ancillary to those mentioned in item 2 and other matters.

Note that if there is a previous agreement, the new financial agreement will terminate the old one if the parties to the new agreement and the old one are the same. If you’re curious about the rules on financial agreements, this blog article might help.

Whats a Prenup: Importance of Prenuptial Agreements

Prenuptial agreements are often entered into by couples because of the many advantages they can get and the hassle they can avoid in the event of separation. Here are some of the benefits and what prenuptial agreements cover:

1. It protects individual assets. Prenups can safeguard assets acquired before the marriage, such as inheritances, family businesses, or property owned solely by one partner. This can provide peace of mind for individuals entering the marriage with significant wealth or those who want to ensure their assets remain protected for future generations, like children from previous relationships.
2. Clarity and communication. Discussing and outlining financial expectations before marriage can foster open and honest communication about money, potentially preventing disagreements and resentment down the line. 
3. Reduced conflict in divorce. Prenups can streamline the divorce process by establishing strict legal guidelines for asset division and spousal support. Doing so can save time, money, and emotional stress during an already difficult time. 
4. Protects business interests. For individuals owning or operating businesses, prenuptial agreements can shield their business assets from being divided in a divorce. This kind of agreement can ensure the continuity and stability of the business, especially if it’s a major source of income for the family.
5. Provides financial security for stay-at-home partners. If one partner plans to stay home to care for children or manage the household, a prenup can acknowledge their contributions and ensure they receive fair compensation in the event of a divorce. 

Nevertheless, prenuptial agreements are not without limitations. They cannot be used to exclude certain assets from division, such as those acquired through fraud or duress. Additionally, the family court may not uphold prenuptial agreements deemed unfair or unconscionable.

What’s a Prenup: Legal Requirements

Whats a prenup? As discussed, in Australia, the Family Law Act 1975 recognises prenuptial agreements as legally binding documents. To be considered legally binding, a prenuptial agreement must meet the following requirements:

1. Written and signed by both parties. The agreement must be in writing and signed by both parties, preferably in the presence of witnesses.
2. Each partner must receive independent legal advice. Both parties must receive independent legal advice to ensure that the agreement is fair and reasonable to both parties, and to avoid any potential issues arising from a lack of understanding or duress.
3. Specify the extent of spousal maintenance. The agreement should specify the extent of any spousal maintenance provided.
4. State that both parties have received specified independent legal advice. The agreement must include a statement from a legal practitioner as to the effect of the agreement on the advantages and disadvantages to the party making the agreement, whether or not it was necessary for the party to make the agreement, and whether the provisions in the agreement are just and equitable.
5. Disclose all assets. The agreement should provide a full disclosure of each party’s assets, including any overseas assets.
6. Cover a wide range of assets. Prenuptial agreements can cover various assets, such as cash, real estate, superannuation, investments, businesses, inheritances, and pension entitlements, as well as outline any obligation to finalise debts and liabilities of the relationship.

If parties meet this criteria, the prenuptial agreement is legally binding and enforceable in Australia. However, both parties need to seek independent legal advice to ensure that the agreement is legally binding and enforceable. 

Whats a Prenup: Independent Legal Advice Requirement

For a prenuptial agreement to be legally binding, both parties must have received independent legal advice. This ensures that each party enters into the agreement voluntarily and with a full understanding of its implications. 

The independent legal advice aims at ensuring that the agreement is fair and reasonable to both individuals and that there has been full disclosure of their financial situation, including any businesses owned or properties held in their name. 

Additionally, the agreement must include a statement from a legal practitioner about the advantages and disadvantages to the party making the agreement, whether it was necessary for the party to make the agreement, and whether the provisions in the agreement are just and equitable.

This requirement is in place to prevent any potential issues arising from a lack of understanding or duress and to enhance the enforceability of the agreement.

Seek Expert Guidance from JB Solicitors

Prenups require specific legal language and may involve family court proceedings. Our family lawyers at JB Solicitors can help married couples and couples in a de facto relationship with the question of “whats a prenup.”

We can also ensure your legally binding financial agreement is enforceable and upholds your rights. Contact us today and schedule a consultation with a family law attorney.