Are Prenups Just For Celebrities? Financial Agreement Facts To Consider Before Saying ‘I Do’.

As Kanye West has famously advised us ‘if you ain’t no punk Holla, “We want prenup! We want prenup! (Yeah). It’s something that you need to have …” Whilst I might disagree with the next line of the song (a bit too rude to quote) and say that each case is different and “half” is not a binding legal rule or the outcome in every case, I do agree with Ye that there are some very sound reasons to put a pre-nup in place. But before we get to considering those, what is a pre-nup? And besides it being in vogue with celebrities, athletes and the affluent, why should you consider having one?

What Is A Financial Agreement?

A Financial Agreement (FA) is a type of legally binding contract between married or de facto parties (and may which also include third parties, for example, corporations or trusts) that aims to bypass the Family Law Act 1975 (Cth) (FLA) or the Family Court Act 1997 (WA) (FCA) (as may be the case depending on whether the parties were married or in a de facto relationship) by resolving by agreement property division and/or maintenance issues. Essentially the parties agree to “contract out” of the law that would otherwise dictate their property division and maintenance rights and obligations.

What Can Be Included?

A Financial Agreement can be made with respect to any of the following matters:

• How, in the event of a breakdown of the marriage or de facto relationship, all or any of the property or financial resources of either or both of the parties at the time when the agreement is made, or at a later time during the marriage or relationship, is to be dealt with.
• The maintenance (alimony) of either of the parties:
  - during the marriage or de facto relationship;
  - or after divorce or the end of the de facto relationship; or
  - both during the marriage or de facto relationship and after divorce or the end of the de facto relationship; or
• Matters incidental or ancillary to those mentioned above, such as, the payment of child support); or
• Other matters, which can include just about anything.  For example, J.Lo and Ben Affleck included in their 2003 draft prenup (which they ultimately didn’t sign), what would happen to their property division if one of them was unfaithful.

At What Stage Of A Relationship Can Financial Agreements Be Entered Into?

Financial Agreements may be entered into at the following stages of a relationship:

• before marriage¹
• before beginning a de facto relationship²
• during marriage³
• during a de facto relationship⁴
• after a divorce order is made⁵; or
• after a de facto relationship has ended.⁶

Why Should You Consider It?

It provides an opportunity to set out clearly in writing how parties will conduct their finances during their relationship and who will be responsible for paying for specific expenses or how their income will be distributed. This can provide parties with greater financial certainty and the capacity to focus other resources on achieving individual or joint financial goals.

Parties can restructure and transfer the ownership of assets between themselves during their relationship and clarify what will happen to those assets when they separate. This can provide duty and tax exemptions or concessions, which may otherwise be very significant.

Some people have family provision front of mind and want to ensure their estate is devised in the way that they nominate, rather than have a Court decide. This is particularly common in blended family situations where the relationship is a not the first for the parties, they have children of those relationships and wish to make appropriate provision for their spouse or partner in the event of their separation and to provide certainty for their children.

A Financial Agreement is the best asset protection strategy available in family law. It is commonly utilised for this reason:

1. In the corporate world in circumstances involving a trading entity which the directors or partners seek to shield from interference, in the event of a separation of one of the shareholders or owners.
2. Where one party to the relationship has significant pre-relationship assets, which the parties wish to remain the separate property of that party if they separate.
3. To ensure that intergenerational wealth management and succession strategies are not interrupted by the personal relationships of members of the wider family group.
4. Where a party has been involved in a contested Family Court matter before and wants to avoid that in their next relationship.
5. Where a parent or family member has acted as “the bank of Mum or Dad” to enable their child to purchase a home, which the child and their spouse or partner will live in, and the family members wish to clearly identify their rights and interests in that property.

A FA is a way to avoid protracted litigation between parties. This includes eliminating the variables and uncertainties associated with litigation, such as the expense of legal costs, delays involved in awaiting a Court outcome (which is presently 3-4 years in the Family Court of WA), emotional costs such as anxiety, stress and worry, a lack of control over one’s financial future and the uncertainty associated with the Family Court’s exercise of its very broad discretion in financial cases.

It provides parties with the capacity to keep their financial affairs confidential, because a FA, like other contracts, is a private agreement between the parties to it. It is not scrutinised by a Court, unless a party applies to enforce an FA or, to seek to have it declared not to be binding or, to have it set aside. Often parties will agree to include a term in a FA about maintaining the confidentiality of the agreement and its contents, other than to the extent necessary to obtain advice as, maintaining privacy is important to many people in modern society.

There are limited circumstances where a FA can be terminated. Parties to a FA can only terminate it by doing one of the following:

• Creating a subsequent FA that includes a provision terminating the previous FA; or
• making a written agreement to terminate the FA (known as a termination agreement).⁷
• Maintenance rights and obligations that arise through a FA cannot be varied, discharged, suspended, or revived by the Court, without the FA first being terminated or set aside. Comparatively, a Court Order for maintenance is capable of being revived and amended for an indefinite period, subject to the individual circumstances of a particular case.
• If a FA complies with the legislative requirements (i.e. it is binding), then it is capable of being enforced, if a party does not comply with their obligations.

What Are Some Disadvantages?

As a FA is not approved by the Court, the parties may agree that the terms of the FA reflect a satisfactory outcome in the event of their separation nevertheless and, though it is not recommended, parties are free to enter into grossly unfair agreements if they choose to do so.

While parties may see it as an advantage that it is difficult to vary FAs, for those who do wish to vary their agreement after it is signed, they must go through the process of entering into an entirely new agreement that replaces the FA, it cannot simply be varied.

What Are The Requirements For A Financial Agreement To Be Binding?

A FA is binding on the parties, if and only if.⁸

• It is signed by all parties; and
• before signing the FA, the parties were provided with independent legal advice from a legal practitioner about the effect of the FA on their respective rights and about the advantages and disadvantages, at the time that the advice was provided, to each of them respectively of making the agreement; and

if under the FLA

• either before or after signing the agreement, the parties were each provided with a signed statement by the legal practitioner stating that the advice referred to was provided to them respectively. Whether or not the statement is annexed to the agreement; and
• a copy of the statement must be given to the other or to a legal practitioner for the other; and
• the agreement has not been terminated and has not been set aside by a court.

If under the FCA

• before signing the Agreement, the parties were each provided with a signed certificate by the legal practitioner stating that the advice referred to was provided to them respectively and the certificate is annexed to the agreement; and
• the agreement has not been terminated and has not been set aside by a court; and
• after the agreement is signed, the original copy is given to one of the parties and a copy is given to the other.

Just like other types of contracts, there is no “one-size fits all” in relation to FAs. What an FA can provide in a particular case and the reasons why it might be advantageous (or otherwise) to enter into one is variable. If you want to discuss your unique circumstances and whether a FA may be suitable for you, please do not hesitate to contact Jorja Brady or the Family Law team at Lavan.