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Do Pre-nup agreements really work?

As Family Lawyers we are often asked about “Pre-Nups”. A Pre-Nup is known as a Binding Financial Agreement (or “BFA”) in Australia. It is an agreement made between parties to a relationship, outside of the court process, that dictates how their assets and liabilities will be divided if the relationship breaks down.

A BFA allows the parties to deal with the division of their finances by contractual means instead of going through the family court system.
In many instances, the BFA is entered into before marriage or before commencing a de facto relationship.

In some situations, the relationship has already broken down and the parties utilise a BFA to decide what property each will receive. BFA’s can also be made during the relationship in advance of any relationship problems. BFA’s can be made by married couples and de facto couples alike.

BFA’s have been the subject of much discussion and debate of late by both the public and lawyers.

Recent developments in the law have created a perception that BFA’s should not be entered into because they:
1. Will not stand up in court;
2. Are easy to disavow and “wiggle your way out of” or
3. Cannot be drafted so as to protect the parties to the agreement.

These perceptions are misplaced. If a BFA is properly drafted, it will be valid and offer the protection that the parties to the BFA seek. Notwithstanding their technicalities and complexities, a properly drafted and properly signed BFA is a cost-effective tool to minimise the risks associated with the financial aspects of a separation.

In order to stand up in court the parties to a BFA must:
1. Both sign the agreement;
2. Disclose all of their financial circumstances to the other;
3. Receive independent legal advice about the agreement and
4. Each receives a copy of the signed agreement.

Like any binding contract, BFA’s are not easily disavowed and if properly drafted, are extremely difficult to have set aside. In fact, even BFA’s with minor technical faults (such as improper party names, misspellings, etc) have been found to be binding. Additionally, a court will not set aside an agreement just because it is unfair.

Many of the examples of BFA’s being set aside have to do with parties not receiving independent legal advice regarding the agreement or being pressured unfairly to sign the agreement.

As part of our role, we ensure that both parties have the necessary legal advice to prevent any suggestion that a party did not understand, or were pressured into signing, the agreement.

Some of the other ways a BFA can be held to be invalid or set aside are:
1. When a person facing insolvency uses the agreement to defeat the claim of a creditor;
2. If the agreement is unconscionable or grossly unfair or
3. If the agreement is the product of duress.

Because of their complexity, some lawyers refuse to draft BFA’s. At Watkins Tapsell, our Family Lawyers reject this approach and, instead, address the complexity of BFA’s with a detailed and thorough approach to ensure that the various requirements are met. We guarantee to our clients that our BFA’s conform to the exacting standards necessary to ensure that they are binding.

If you have questions regarding an existing or possible future Binding Financial Agreement, please contact our Family Law Team.