The Benefits and Risks of a Prenuptial Agreement in Australia

By cropped Clara Suki

· Read time: 5 minutes

Prenups bring with them many benefits, such as security (potentially for both parties), the preservation of specific assets, and advantages of negotiating how a property settlement would occur before any conflict arises. However they also bring risks including inability to execute if there is too much complexity, the emotional uncomfortableness that discussing a prenup may bring, and inflexibility if circumstances change over time.

Benefits and risks of a prenuptial agreement

Prenuptial agreements are also known as prenups or Binding Financial Agreements (Prenuptial Agreements). They can be used by both married as well as defacto couples.

The benefits of a Prenuptial Agreement 

The Family Law Act allows couples to enter into a legally binding Prenuptial Agreement, which can be important if a relationship breakdown occurs. 

If negotiation for a ​​Prenuptial Agreement is undertaken during a happier stage in the relationship, there is arguably greater possibility for a fair and equal division of property that both individuals are satisfied with.

This will also save time, money and any emotional stress that can come with agreeing to a Binding Financial Agreement during a dispute when tensions are high in the relationship.

Thus, having an agreement defined before the relationship can mean an easier and more comfortable negotiation process and a better agreement. 

A Prenuptial Agreement will help you preserve any assets that you may have going into the relationship or acquire later on. 

Thus, you may consider entering into a Prenuptial Agreement if you: 

  • Have more assets/property than your partner at the beginning of the relationship
  • Are entitled to an inheritance or gift that you would like to preserve
  • Have made investments 
  • Operate a family business 
  • Want to safeguard the finances of any children 

Ultimately, a Prenuptial Agreement can help you to preserve certain assets that are important to you and will ensure that property is divided equally and fairly between both individuals if separation occurs. 

Risks with prenuptial agreements

A Prenuptial Agreement can be overruled by the Family Court if it is not drafted or executed properly. It is only valid if it has met all the requirements set out in the Family Law Act.

This means that a Prenuptial Agreement can be overruled if, for example, proper consent was not obtained from either party, or if one party has not given proper disclosure of their assets. 

A Prenuptial Agreement can also be overturned if the circumstance of either party has changed dramatically, and has made the agreement impractical. This also applies if the circumstances of the children involved have changed. 

If a Prenuptial Agreement has been set aside, the parties can negotiate afresh, or apply to the court for a property settlement to divide their assets equally and fairly. 

What does a prenup address?

A prenup can cover a variety of issues, including property division, spousal maintenance, and inheritance rights. It can also address issues related to business interests, investments, and other financial matters.

What makes a Prenuptial Agreement binding? 

Under the Family Law Act, a Prenuptial Agreement is binding if both parties were provided independent legal advice before signing the agreement. It is also important that both individuals are told of their rights and how the Prenuptial Agreement may impact them.

Advantages and disadvantages of signing the Prenuptial Agreement should also have been discussed between the individuals and their lawyers before signing.

Each party must also have been given a signed statement by their lawyer certifying that such advice was given, and this must also be given to the other party’s legal practitioner. 

After a signed copy of the Prenuptial Agreement is given to each party and it is confirmed that each party has received advice from their lawyer, the Prenuptial Agreement becomes legally binding.

This means that the Prenuptial Agreement will now be very difficult to change and will hold the separated individuals accountable to the agreed property settlement.  

What information is needed for a Prenuptial Agreement? 

Factors that can be taken into consideration for a Prenuptial Agreement include: 

  • The occupations of both parties and their salary
  • The capacity to earn future income
  • The current value of assets in the relationship
  • Details of any liabilities that may be owed
  • The date at which the relationship commenced 
  • Any superannuation entitlements 
  • The age and number of children 

What happens if I do not have a Prenuptial Agreement? 

If you are currently separating from your partner and do not have a Prenuptial Agreement, you and your former partner will have to either negotiate a property settlement or apply for court intervention. The path taken will depend on what suits your particular circumstances. 

If you need any advice regarding the creation of a Binding Financial Agreement after a relationship breakdown, feel free to reach us via the contact form. 

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