While pre and post-nup binding financial agreements can provide a solid fallback if a relationship goes sour, make sure you know exactly what you’re getting into before you take the plunge, writes Susan Bonnici *
Many of us have heard the famous line by divorcee Ivana Trump in the movie The First Wives Club – “Don’t get mad, get everything.” While it made us laugh, it’s a sentiment that propels many couples to protect their respective assets.
With just over 49,500 divorces granted in Australia in 2020 and up 2% from 2019 according to the Australian Bureau of Statistics, it’s no wonder that many couples consider entering into a binding financial agreement (BFA) to set out an agreed division of their assets should the relationship end.
BFAs can offer couples a mutually agreeable way of dealing with splitting assets if appropriate, and a means to avoid expensive court battles.
But the success of a BFA is dependent on the terms it contains, how relevant they remain, and whether they are ultimately executed in line with their original intent.
A BFA, also known as a ‘pre-nup’ or ‘post-nup’, is a way for couples to agree on how they will divide up their assets in the event they separate or divorce. Its aim is to provide some certainty to couples, open the door for a more amicable divorce should that happen, and hopefully avoid the prospect of a long and costly court battle. While they are often entered into before a marriage or cohabitation, they can be drafted at any point during the relationship, or even after a couple separates.
Assets that BFAs deal with can include properties, superannuation benefits, financial support or maintenance for any dependants or the spouses themselves, plus future inheritances, investments, jewellery, and cash.
It’s important to note though that BFAs are not registered with a court of law, and they don’t have the same legal standing as a consent order from the courts. Third parties are not bound by BFAs except when it comes to a super splitting arrangement, and independent legal advice is compulsory for both parties during drafting and signing.
A BFA can help protect an individual’s assets if a relationship breakdown occurs, especially assets they may have already had before the relationship started. If this topic is discussed early, while the couple has a strong and respectful relationship, the negotiation process is more likely to be reasonable and help provide some peace of mind for both parties. BFAs are usually a much more cost-effective way to settle the division of assets in the event of a relationship breakdown, as opposed to going through a protracted legal battle in the Family Court.
From an estate planning perspective, a BFA can help ensure that property or other assets are passed to the next generation as originally intended and reduce the prospect of wills being contested by disgruntled family members down the track.
On the flip side, BFAs can be tough to discuss. They may make the individuals feel uncomfortable or guilty for even raising the topic. If your loved one is suggesting a BFA to you, you may feel hurt or confused especially if the terms of the BFA seem far more favourable to them. At the same time, there is no legal requirement in Australia for a BFA to be fair, unlike a traditional property settlement.
BFAs can also be legally overturned if they didn’t consider all critical circumstances, were made under duress, or are not executed properly.
Implementing the terms of the agreement is just as important. Consider the couple who had their BFA signed by solicitors but hadn’t actually executed the terms. Fifteen years after the couple had separated the husband had continued to provide regular payments to the wife, which wasn’t part of the original BFA. In addition, other agreed property divisions hadn’t been executed. As a result, when he passed away, the wife was able to make a claim on his estate and receive a healthy entitlement at the expense of his other beneficiaries.
BFAs also need to be reviewed and updated regularly with respect to any significant events in the lives of the parties, including what to do with superannuation assets.
If a personal situation changes and it hasn’t been updated, a BFA can be overturned or ‘set aside’ by the courts. For example, if a child has been born, or one of the parties received a payout or inheritance, or if a BFA negatively impacts any dependents, then it won’t necessarily be worth the paper it’s written on.
When you meet someone new, it’s hard to think about serious issues such as BFAs. Seek proper advice – talk to your family law solicitor and an estate planning solicitor. Sharing plans with your own family may also be a good idea in some situations.
No matter who suggests the BFA, whether it’s you or your partner, it’s vital to take a deeper interest in your finances. Ultimately, a BFA is as useful and as relevant as you make it and should be treated as a living document. And while not ironclad, they can be incredibly useful.
* Susan Bonnici is Estate Planning Solicitor at Equity Trustees.