What is a Prenup?

Updated: 7 November 2024 · Read time: 7 minutes

A prenup is a powerful way to know where each member of a relationship stands. It can serve as security to protect yourself and your legacy.

While some may view it as unromantic and noncommittal, it can also serve as the framework to hold frank discussions about the financial reality of the relationship. It can also provide a sense of security to actually allow the relationship to progress forward.

With many people entering long term relationships later in life when they have more assets and complex financial structures in place, it can be a rational thing to have in place.

What is a prenup?

A prenup (or prenuptial agreement) goes by the legal term “Binding Financial Agreement” (BFA) as defined in the Family Law Act.

Essentially, a prenup serves as a legally enforceable contract between individuals intending to marry or enter into a de facto relationship.

This agreement delineates the financial arrangements between the parties, providing a structured framework for the division of assets, liabilities, and financial matters should the relationship dissolve.

What can a prenup include?

A prenup can cover a wide range of assets and finances, including:

property division
investments
debts
inheritances
spousal maintenance
pets

Couples have the flexibility to tailor their prenuptial agreement to their individual needs, preferences, and financial circumstances.

However, it's important for the agreement to be fair and reasonable to both parties.

What can't a prenup include?

Although a prenup can detail the division of assets and finances in case of divorce or separation, it cannot address matters related to child custody or support.

What are the benefits of Prenups?

Negotiating a Prenuptial Agreement during a harmonious phase in the relationship can increase the likelihood of achieving a fair and equitable division of property that satisfies both individuals.

This proactive approach not only saves time and money but also alleviates emotional strain that often accompanies negotiating a Binding Financial Agreement during times of conflict in the relationship.

Prenups streamline the process of separation or divorce by preemptively addressing potential disagreements, leading to smoother proceedings.

Other benefits include:

Cost Reduction: Separations and divorces can incur significant expenses, especially in cases involving high financial stakes and contentious relationships. By outlining asset distribution beforehand, prenups can notably diminish associated costs.
Conflict Mitigation: Prenups frequently diminish animosity between parties, fostering an amicable conclusion to the relationship.
Asset Protection: Prenuptial agreements safeguard valuable assets such as premarital properties, family heirlooms, and owned businesses.
Clarity and Assurance: Providing both parties with clear expectations regarding the outcomes of a potential relationship breakdown, prenups offer certainty and minimise confusion in decision-making processes for the future.

And what are the drawbacks?

While there are many pros to getting a prenuptial agreement, there are also a few cons, such as:

If enforced, it could potentially nullify your entitlement to any spousal inheritance prescribed by law.
In the event that you contribute to your spouse's business's success but are excluded from any ownership as per the agreement, you may not have recourse to claim any assets in case of divorce.
Some individuals perceive initiating a marriage with such a contract as a sign of distrust.
Since it's an agreement made outside of court, its enforceability cannot be guaranteed unless challenged in court if the relationship dissolves.

However, all in all, when drafted by a specialised family lawyer, a prenup can offer one of the most robust forms of protection.

Do prenups suit all relationships?

If you don't possess any significant assets like property, businesses, or inheritances to safeguard, the necessity for a prenuptial agreement may not arise.

However, if you do have such assets, it's advisable to have a discussion with your partner to assess whether signing a prenup is appropriate for your situation. (Remember, even beloved pets are considered property!)

Generally, a prenup can be considered where financial assets are already established before the marriage, or where there is likely to be a substantial inheritance.

How do you organise a prenup?

To obtain a prenuptial agreement in Australia, both parties entering into the agreement must do so voluntarily and with a full understanding of its consequences.

Each partner needs to obtain independent legal advice to ensure fairness and equity for all involved.

The prenup must be in written form and signed by both parties, preferably in the presence of witnesses.

Once signed and executed, the prenup should be securely stored where both parties can access it if necessary in the future.

What makes for a successful prenup?

Drafting an effective prenup requires some careful consideration and planning.

Here are some key tips:

Embrace transparency: Full and honest disclosure of assets, debts, and finances is imperative for the effectiveness of a prenup. Non-disclosure can lead to complications.
Model for scenarios that may occur in the future - for example future inheritances that either party may receive.
Allow for flexibility - for example, while prenups generally proceed on the basis that each party will keep their own assets, you can pre-plan for situations where you may want to purchase property or investments together.
Regular review and updates: Given that financial and lifestyle circumstances may change over time, it's important to periodically review and update the prenup as needed.

Can you make a prenup without a lawyer?

A prenup without a lawyer is essentially a handshake deal. A lawyer who is experienced with prenups and binding financial agreements should be engaged to draft the prenup.

Without the other party having received their own independent legal advice, the prenup will not be valid, and stands to be unenforceable.

Working with a lawyer will mean that the agreement is structured in a way to effect the way you want it to operate. It will also ensure that is legally valid, and can stand on its own in the event that it is ever challenged.

How can you know if a prenup is legally compliant?

Prenuptial agreements must adhere to rigorous legal standards as specified in the Family Law Act (1975). Here are the key requirements:

1. Written form: Prenups must be documented in writing.

2. Independent legal advice: Both parties must receive independent legal counsel before signing the prenup. This advice must be obtained from an Australian lawyer.

3. Voluntary agreement: Each individual must sign the prenup willingly, without any coercion, duress, or undue influence. It's impermissible for one party to condition marriage upon signing the prenup.

4. Complete financial disclosure: The prenup should encompass a comprehensive disclosure of each party's financial situation.

Can a prenup be challenged?

Prenups are not without their risks. Prenups can be challenged in Court and be overturned.

Some common grounds include:

Coercion: If one party unduly pressures or coerces the other party into signing the agreement, it may be invalidated. This can also cover requiring the other party to sign the agreement shortly before the wedding, or making it a condition for the wedding to proceed.

Lack of financial disclosure: Failure to disclose the full extent and value of assets during the drafting and signing of the prenup may lead to its nullification.

Children: If the agreement fails to address provisions related to future children, it may be invalidated.

Lack of fairness: If the agreement is deemed unjust or inequitable, it may be set aside by the court.

Looking for assistance with your prenup?

Whether you are considering formulating a prenup, or having one reviewed, we can assist. We are family lawyers who specialise in prenups and binding financial agreements. Get in contact and we can chat about your prenup.