I have often heard in conversations between people that are not lawyers that pre-nups (the old term for binding financial agreements) are not worth the paper they are written on and can be overturned in Court.
The truth is that binding financial agreements are in fact a very effective way of protective assets and if done properly, they can provide long term protection against claims from relationship partners for a relatively small investment.
Binding financial agreements can be entered into before a relationship or marriage, during a relationship or marriage, or used to formalise a separation agreement.
The horror stories we hear about where these agreements are set aside, are all because they have been set up or executed incorrectly. To be binding, there are certain requirements that need to be met. If these requirements are not met, the agreement can be set aside.
What are the requirements needed for an agreement to be binding?
- Each party to the agreement must have received legal advice and the lawyer must sign the certificate of legal advice included in the agreement.
The most common error is that people who are not lawyers think that it will be cheaper if they just copy a friend’s agreement and change the content to suit them. Irrespective of whether the agreement was prepared by you or your spouse or if you have dozens of emails agreeing to the terms, if there is no certificate of independent legal advice for ‘each’ party, the agreement will be deemed void and set aside.
Please ensure that the agreement is drafted by a lawyer and that there is a certification certificate from a lawyer for ‘each’ of the parties.
- There must be no duress
Parties who have their lawyer draw up an agreement the week before their wedding (just in case it caused issues with their spouse) are asking for trouble. The Federal Circuit and Family Court abounds with cases where an agreement was set aside because the Wife or Husband felt that they had no option as the wedding had been booked and the guests invited.
- The party signing the agreement must have understood the advice
This element is particularly important if one of the parties entering into the agreement does not have a good command of the English language. Ensure that the spouse engages a lawyer who speaks their language and that they are given a written letter of advice in their own language about the terms of the agreement before it is signed.
- The party signing the agreement (or their lawyer) must be provided a certified copy of the fully executed agreement.
Like any other contract, being fully aware of what you are signing is an imperative element of having a binding agreement. Ensure that your partner is provided with a copy of the fully executed agreement after signing it so that the terms can not be forgotten about or misunderstood.
- Failure to disclose assets
I often hear complaints from my clients that they would prefer to keep some assets ‘secret’ from their future spouse. This is usually because they are fearful that the spouse may feel inadequate, or worst, because they feel that they may be taken advantage of if the partner realises how cashed up they are.
While it may be tempting not to include all the assets, one of the reasons that an agreement may be set aside is if full disclosure is not provided. The reason for this is because both parties must be fully informed of what they are potentially giving up, before they can enter into an agreement in a way they are fully informed.
In a case I had 10 years ago, my client’s husband deliberately omitted a significant superannuation funds from a binding financial agreement which had been prepared during their relationship. When the parties separated their assets, my client discovered the agreement and brought it to my attention.
I made a Court application to set the agreement aside for failure to disclose a significant asset. The result was that the Husband was ordered to pay our client a significant portion of that superannuation fund.
What are the benefits of a binding financial agreement?
- They can provide certainty that you will walk away with the assets that you came into the relationship with. This is particularly important for people that commenced their relationship later in life and already have assets that they built before the relationship commenced.
- There is no expensive litigation or stressful family law proceedings in the event that you separate.
- Binding Financial Agreements are binding on a person’s estate. This means that if you die, the terms of the binding financial remain in place and it will be difficult for your spouse to claim money from your estate.
This is particularly important if you have adult children that you would like to leave your assets to. If you die and your spouse challenges the will, they are likely to be unsuccessful if you and your spouse had entered into a binding financial agreement separating your assets during your relationship.
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