Demystifying “pre-nups” in Australian family law

Hollywood loves a “pre-nup” and often spruiks the idea that when one party has an affair, the pre-nup is declared void or provides for the other party to be compensated. However, pre-nups in the Australian legal context are not exactly like those in Hollywood. So what is a pre-nup and how do they work in the context of Australian family law?

Australia’s family law system is based on a “no fault” system, which means that one party cannot blame the other for the breakdown of the relationship (for example, because of an affair) and thereafter obtain a benefit in the form of a greater percentage of the property pool as a result. Therefore, in Australia, “post-nups” and “pre-nups” (known as Financial Agreements in the Family Law Act) are not used to punish a party, but may be an appropriate tool to protect certain assets in particular circumstances.

Financial Agreements can be entered into before, during or after separation of a married or de facto couple. The purpose of a Financial Agreement is to be binding on parties and to effectively exclude the jurisdiction of the family law courts. Where such an agreement is prepared correctly, the court is unlikely to vary the parties’ interests or make alternate orders with respect to property and/or spousal maintenance.

For such agreements to be binding they must strictly comply with the requirements contained in the Family Law Act. These include, for example, that each party has obtained independent legal advice and there is a statement of a solicitor confirming such advice attached to the agreement, and that the agreement is made pursuant to the correct section of the Act. There is a risk that one party will seek to have an agreement overturned on grounds that the resulting outcome is “unfair”. Whilst “fairness” is not a relevant test, if an outcome is weighted significantly in one party’s favour it increases the likelihood of a party seeking to have the agreement set aside.

How do you know if a Financial Agreement is a good option for you? They are arguably most suitable for persons entering second marriages who want to protect existing assets, to preserve inheritances, or to provide for the involvement of third parties (such as parents or siblings) in financial affairs to the exclusion of a spouse.

If you have a client who is considering entering into a Financial Agreement, it is important that they understand the risks involved, as well as the advantages and disadvantages, based on their own personal circumstances.

Our family lawyers can assist in determining whether or not a Financial Agreement is suitable for your or your client’s needs.