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?
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.
A Financial Agreement can be made with respect to any of the following matters:
Financial Agreements may be entered into at the following stages of a relationship:
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:
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:
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.
A FA is binding on the parties, if and only if.8
if under the FLA
If under the FCA
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.
[1] s.90B FLA
[2] s.205ZN FCA
[3] s.90C FLA
[4] s.205ZO FCA
[5] s90D FLA
[6] s205ZP FCA
[7] s.90J FLA (or s.205ZU FCA)
[8] s.90G FLA (and section 205ZT FCA)