Your wedding day is said to be the happiest day of your life. I myself have fanticised about my own future wedding; the dress, the venue, the cake… and the groom, of course. In a perfect world, prenuptial agreements or prenups wouldn’t exist, because no one would ever get divorced. Unfortunately, that’s just not the world we live in.
While discussing the end of your marriage before it even begins may seem unromantic, pessimistic or even somewhat insulting, it’s no surprise that people do it. In 2020, there were 49,510 divorces granted in Australia.
Getting married ties you to your partner romantically, but also legally and financially - things that shouldn’t be ignored. Is getting a prenup a good way to prepare for the worst, or the worst way to prepare for your new married life?
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What is a prenup?
A prenuptial agreement, also known as a binding financial agreement (BFA) or prenup, is a legally binding contract created and signed by two people before they get married. The document outlines how their property and assets will be handled in the event their relationship ends in separation or divorce. You could think of it as a will but for your relationship; if it dies, what will happen?
While most think a prenup is only made before people get married, this isn’t always necessarily the case. You could enter into a BFA during a marriage, after a divorce or break up, or even if you’re in a de facto relationship. It’s basically meant to simplify the whole process of separation and untangling the lives you may have had together.
Say, if you want to keep the holiday unit and your partner wants to keep the family car - all of this can be negotiated and agreed upon in your prenup. If worse comes to worst and things just don’t work out, you can part ways without needing to worry about what’s yours and what’s theirs.
You might be thinking, do you really need a prenup? No, you don’t - if you separate with your partner without a prenup in place, the matter will be handled in court using the Family Law Act to divide assets and reach settlement. However, a prenup can make ending a relationship somewhat less messy… at least legally and financially.
How does a prenup work?
Since it’s a legal document, there are some strict rules that must be followed when drawing up a prenup. Otherwise, it may not be legally binding in Australia and could be overturned in Family Court.
As you could probably guess, both parties need to be on board with the whole thing, and sign the agreement using their own free will without any pressure or threats. To ensure this is followed through, both parties need to receive their own individual legal advice so that they understand the effect of the agreement, the advantages, the disadvantages, and your rights when entering a prenup.
Generally arranged at the beginning or a marriage or long-term partnership, conditional arrangements may be included in it. For example, there may be conditions about having children, assets like a family business, superannuation, or financial support for either spouse.
Solicitor at Australian Family Lawyers Stephanie Azzi said property, inheritance, income, superannuation, and businesses owned by either party before or during a marriage can be covered in the contract.
“These agreements address how to divide net assets and resources if a marriage/relationship breaks down, and effectively excludes the Federal Circuit and Family Court and the principles set out in the Family Law Act from having any say in that division,” Ms Azzi told Savings.com.au.
She said some of the most common reasons partners can ask their spouse to enter a prenup include:
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Protecting their current wealth
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Wanting to protect some specific items: this could be treasured items like pets or family heirlooms
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Wanting to protect a future inheritance or other lump sum payment they are expecting
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Simply wanting to have some certainty about what a property settlement would look like if you were to separate down the track
Ms Azzi said the last point can be particularly true if your partner has been burnt in previous relationships.
“You don’t need to be cashed up to benefit from entering into a prenup!” she said.
Who should consider getting a prenup?
In order to enter a prenup, you must be at least 18 years old and in a de facto relationship, about to get married, or already married. Basically you need to be pretty serious with your partner and see a future together where your aforementioned stuff is their stuff… and vica versa. Maybe you’re thinking about buying a house together, or maybe you want to have an adjoining bank account. You should have some things that would need to be split if you were to break up in order to consider a prenup.
Many people think you need to be wealthy to enter a prenup, but Ms Azzi points out that isn’t necessarily the case.
“Anyone can get a prenup. Even if you don’t consider yourself wealthy, you might still have assets you’d like to protect,” she said.
“Prenups are becoming increasingly popular for mature aged couples where it’s a second or third marriage, or where they have children with a previous partner and they wish to protect their inheritance.
“Another good reason for considering a prenup is if you inherit a family business or large property and you want to make sure the future of the family business or property stays in the family.”
How much does a prenup cost?
You may wonder how much a prenup will cost, and decide whether the cost outweighs what you could potentially lose if your relationship goes south.
Ms Azzi said that the cost of a prenup will vary depending on the complexities of the agreement and the number of amendments made prior to being finalised and agreed to by both parties.
“Both parties need to seek independent legal advice so two separate lawyers need to be engaged so that both parties are aware of the effect of the agreement, their rights and the advantages and disadvantages of the agreement,” Ms Azzi said.
Since this is a pretty vague idea of the potential costs you might run into, the basic agreement starts at $2,500 but can end up being double this figure according to JB Solicitors.
Pros and cons of getting a prenup
As with anything in life, getting a prenup comes with its own pros and cons. Both the good and the bad should be weighed up before deciding whether a prenup is right for you and your circumstances.
Pro: Protect your important belongings
Getting a prenup can help you protect what’s important to you and your future assets.
“Even if you don’t have a lot of money now, you still may have valued assets you want to protect, like a beloved pet or car,” Ms Azzi said.
“It is also protection for gifts you may receive in the future or assets you will acquire to ensure that you retain them as part of a financial settlement.”
Pro: Mutual respect, transparency and certainty
Ms Azzi said prenups can promote mutual respect, give a relationship certainty, transparency, and some very clear guidelines and expectations around your financial decisions.
“It’s just like purchasing home insurance with the intention of never having to make a claim - touch wood - entering into a prenup can have the same intention,” she said.
“It’s there just in case the roof caves in on your relationship, and when it does, you thank the universe you have that protection.”
She said it also promotes transparency as you are required to disclose all of your assets and financial circumstances.
“Doing this as you embark on a relationship sets you, as a couple, up for open and transparent ongoing conversations about finances - including who owns any existing debt or debt incurred in the relationship - moving forward,” Ms Azzi said.
Pro: No need to worry about a property settlement
If you have a prenup in place, you won’t need to worry about the headache that is going through a property settlement.
“If you jointly own property and your relationship breaks down, you don’t need to worry about going through the formalities of documenting a property settlement at the time of separation,” Ms Azzi said.
“You’ve done it in advance in your prenup which will save yourself the monetary and emotional stress that may come with having to resolve taking legal action through the court system.
“Having a prenup in place can also greatly reduce court costs.”
Con: The cost
As we mentioned, getting a prenup drawn up can be costly. Not only does it cost thousands of dollars to get the agreement written up, finalised and agreed upon, but both parties must also seek their own independent financial advice. Once all the costs of getting the prenup are laid out on the table, it may not end up being an affordable option, or it may not be worth what you could stand to lose if you were to break up.
Con: Can’t always cover everything
While you may cover everything at the current point in your relationship, relationships can (and often do) change over time. For example, you may have kids down the line or acquire new assets not covered in your BFA. This could cause problems if, at this later time, your relationship was to end, as how everything would be split wouldn’t be covered in your prenup.
You may also find that what was agreed upon at one stage ends up not being an even split later on. For example, if you agreed to split everything 50/50, but you end up having five kids and stopped working 10 years ago to be a stay-at-home parent, getting only half of everything may not end up working in your favour.
Con: Awkward conversation
Even in the healthiest, most open relationship ever, bringing up the idea of a prenup can still be awkward. It can imply a lack of trust, or that you plan to break up in the future. Ultimately, it’s probably not going to be a fun conversation. Discussing money at the best of times can be uncomfortable, let alone how you would split it if you ended your relationship.
Tips for discussing a prenup with your partner
If you’re feeling a little uneasy about floating the idea of a prenup past your partner, there are some ways to try bring it up in the nicest way possible. Having mediated many BFA discussions with couples, Ms Azzi has a few tips for discussing the subject.
Proceed with caution
Approach the conversation the same way you would another difficult topic of discussion in your relationship, like making major financial decisions or organising your will. This means picking the right time, place, and way to have the conversation with your partner.
“If you think they may react in a not so positive manner, make sure you’re not bringing up the subject for the first time when they’re not distracted or having a bad day,” Ms Azzi said.
Be prepared for many conversations
Ms Azzi said you should be prepared for ongoing conversations about it and for it to be a process.
“You’re not going to agree or decide on everything in one conversation,” she said.
“Our tip is to schedule in time in your calendar to have the discussions; you could even turn it into weekly date nights.”
Call it an asset agreement, not a prenup
When bringing up the subject, you can talk about it as an asset arrangement rather than a prenup.
“It is simply a document to reflect an agreement about how you each own assets. Sometimes it's all about how things are phrased,” Ms Azzi said.
“You can also talk about it as an insurance policy against the risk of separation. Separating can be expensive and you will each have insurance policies that deal with the risk of other costly events.”
Focus on certainty
“Everyone wants certainty in their lives. When it comes to relationships, the more certainty the better,” MS Azzi said.
“Meaning, [having a prenup] will give your relationship financial certainty - which is a good thing.”
Give it time
Lastly, Ms Azzi said it’s important to give your partner time to think about it and digest your request.
“Don’t force the subject of discussion or it may turn into a fight that nobody wants to have,” she said.
Image by Sandy Millar on Unsplash
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