The much-publicised and high profile divorces put the topic of prenuptial agreement all over the news. While most people couldn’t relate when the assets involved are in millions or billions, they are still reminders of the intricacies of prenuptial agreements.
What are the pros and cons associated with prenups? What can you do if you wish to protect your assets under this circumstance?
What is a prenup?
A prenuptial agreement, a.k.a. binding financial agreements (BFA) in Australia’s family law system, is an accord between couples, before getting married or entering a de facto relationship. Generally, it covers financial matters and may include other issues, such as spousal maintenance or child support (usually, Family Court Orders cannot cover).
These agreements outline the terms and conditions associated with dividing up net assets and resources if a marriage or a relationship breaks down. It also excludes the Family Court and the Family Law Act from having any say in the division.
Prenuptial agreement in Australia
It’s a must for the couple to have independent lawyers to represent each of them. The lawyers should advise on the advantages and disadvantages of the prenuptial agreement beforehand. The prenup must be in writing and signed by the couple and the lawyers for it to be binding.
An agreement can be a costly exercise, but prove to be a worthwhile investment given the peace and security it can provide.
Benefits of a prenup
- Certainty — For estate planning, the way your net assets and resources will be divided is set out in precise details.
- Finality — Any potential dispute is dealt with by the agreement itself. The prenup ensures that the Family Court cannot alter or negate the agreement.
- Privacy — As opposed to court proceedings, only the parties and their lawyers are involved in working out the terms of the agreement.
- Security — Based on how the arrangements will be carried out, both spouses won’t have to worry about what will happen in the future outside the relationship.
- Tax benefits — Parties can get major savings on capital gains tax and state transfer duty in the appropriate cases if they are to receive or exchange property.
- Time & cost — Preparing a prenup doesn’t take long, and compared to Family Court proceedings, costs less. Usually, a BFA and the letter of advice can be prepared within 1-2 weeks once the parties agree on the terms.
Consequences of a prenup
If the agreement is properly drawn and executed, the prenup ousts the jurisdiction of the Family Court and the principles of the Family Law Act.
However, there’s some uncertainty about the efficacy of a prenup in terms of the law that might apply in the future. The impact of prenups can be affected by decisions made in the Family Court.
The couples who enter into a prenup must carefully consider the types of assets they may acquire individually or together during their relationship. They need to develop a financial plan for their future, acquire assets during their relationship, and agree on how to divide them if they separate.
Prenups ratified in Australia are governed by Australian law. And while the agreement can effectively deal with property within Australia, jurisdiction can be an issue if there are assets overseas involved.
