If you are in love, usually the last thing on your mind is setting up a pre-nuptial agreement with your partner. But with Australia’s high divorce rate – around 28% of marriages – it makes sense to consider one.
A pre-nup is binding financial agreement that allows people to outline what they own and bring to the relationship. In the event of a split, it makes it easier to retain their property such as the family home, assets for children from an earlier marriage and a family business. Treasured sentimental items such as jewellery, antiques and paintings can be quarantined too.
“A binding financial agreement is easier than going to the Family Court, which can be very expensive. Family Court delays can be up to a three years in NSW,” says Glenda Laurence, head of family law at Argyle Lawyers.
You don’t need to be married to draw up a binding financial agreement. They work well for de factos and same-sex couples too.
You can draw up a binding agreement outlining the assets you want to retain before, during (mid-nuptial) or after (post-nuptial) the relationship, says Laurence. Such agreements are particularly popular in second marriages where a partner has been through the ravages of a property settlement already and wants to protect assets to pass them onto children from the first marriage.
Binding financial agreements are fairly watertight as they have been around for 15 to 20 years and there is now a large body of legal precedents that provides them with some certainty.
Laurence says the agreements provide better protection than most family trusts, depending on the circumstances. Parents who are worried about their children’s partners getting access to any property they have given their kids have typically set up a family trust to warehouse their assets. But the Family Court typically views family trusts as an asset of a marriage or de facto relationship that is to be divided up.
Laurence says binding agreements are as tax effective as court orders. This means there is no capital gains tax on the family home or on the split superannuation payments. If you sell any of the assets and buy another with the proceeds, it is still a separate asset under the pren-up.
Not everyone needs a prenup but if you are keen on one introduce the idea when you decide the relationship is for the long term. It can be a sensitive topic but it will allow you to see if your partner is open to the idea. It provides an opportunity to talk about your circumstances and goals. It is not a good idea to leave it until the wedding is imminent.
Laurence recommends keeping the agreement simple. There are cases in the US that detail every part of the relationship, such as who takes out the garbage. There are also cases of the signing being filmed in case one party claims to have signed it under duress. But she recommends you resist pressure from a lawyer to make it complicated.
Each person in the relationship needs independent legal and financial advice for the binding agreement to be legally watertight, says Laurance. Both people in the relationship must sign the agreement.
The Family Court says binding agreements have a number of advantages. Not only do they help prevent people from going to court and reduce the financial and emotional costs of legal proceedings but also they also improve parents’ relationships and communication. Also they make it easier for people to move on with their lives. Resolving disputes in the future can be easier too.