This is a tricky topic to broach with your future husband- or wife-to-be, as not many people (we hope!) enter a marriage thinking it will one day end in divorce. But, for many different reasons, the safety net of a Binding Financial Agreement, more commonly known as a Pre-Nuptial Agreement (or even more commonly, a ‘prenup’), is sometimes what couples need to feel safe to say ‘I do.’
Designed to protect an individual’s financial interests, a Binding Financial Agreement details how property and assets will be divided should the idea of forever not ring true. When a prenup is in place, the couple have decided the Family Law Act should not be applied when dividing property and assets, but rather they want to be governed by the terms in their agreement should they part ways. Although they can be entered into at any point, a prenup is usually initiated before the wedding bells chime with conditional arrangements often included (such as the future birth of children or potential acquisition of assets).
Why do some couples make a Pre-Nuptial Agreement/Binding Financial Agreement?
Every relationship is unique, and so are the reasons for wanting a prenup. It is a personal choice, and there is no clear cut right or wrong answer in any situation. Some of the most common reasons couples decide to enter into a Binding Financial Agreement at the beginning of their relationship include:
- One party is considerably wealthier and they want to protect their assets
- One party owns a business and doesn’t want to risk its stability should the other partner try to claim a portion of its value following a divorce
- Limit the exposure of debt to a partner
- Protect a family estate or heirloom
- Protect your assets if you are remarrying and don’t want to go through the process in the Family Court again.
What’s involved in making a Binding Financial Agreement?
There are two strict rules both parties in a relationship must follow for a prenup to be legally binding in Australia.
- It seems obvious, but both parties must sign the agreement at their own will, without any pressure or threats from the other party or external sources (such as in-laws).
- Independent legal advice from separate lawyers at separate law firms must be sought by each party. The lawyers must make their client aware of the compulsory result of the agreement, their rights, and its advantages and disadvantages. Any Binding Financial Agreement that was not created properly can be overruled by the Family Court.
What are the disadvantages?
Not only does it cost money to create a Binding Financial Agreement, entering a relationship already thinking of the end can come with many downsides for the relationship itself. If not communicated properly, it can imply a lack of trust which can set a negative precedent for the relationship from the beginning.
Just like life, relationships are unpredictable. Although conditional variables can be included in a Binding Financial Agreement, we don’t have a crystal ball to know exactly what the future holds. For example, at the time of making the agreement, you might plan on having one child and being the stay-at-home parent, but end up having three children, leaving you out of the workforce for longer than anticipated. This means the dollar figure you agreed to in the prenup will not get you as far as you initially thought should you separate from your partner.
I’m in a de facto relationship. Can my partner and I create a Binding Financial Agreement?
Yes, anyone can make a Binding Financial Agreement at any stage of their relationship to protect their finances.
