Prenuptial Agreements – Asset Protection v Romance
Since December 2000 couples contemplating marriage have been allowed to enter into a Binding Financial Agreement (BFA) before they marry to establish how their property will be divided if their marriage later broke down.
Public opinion seems to be divided into 2 camps, one that that says “Why would you enter into a marriage expecting it to fail – how unromantic is that?” and the other that says “A BFA is smart; it’s just another form of asset protection.”
The second approach is similar to a person assessing risks when starting up a business; questions such as “How do I limit my personal liability?” “What is the best business structure to use?” “Should I create a trust for my personal property to protect it?” are considered smart commercial questions to ask and it is uncommon for a person asking these questions to be dubbed negative or having an expectation that their business venture will fail. So why all the fuss when assessing the same risks when it comes to a marriage or de facto relationship?
Putting aside romantic and ethical views regarding personal relationships, the reality is that when people marry or start living together in a de-facto relationship, there is, in essence, a financial merger (even if you keep your property and bank accounts in separate names). Therefore, just as in any commercial transaction, all risks should be assessed and if appropriate, the parties to the relationship should discuss with each other the tough topics in relation to each person’s intentions. These discussions whould include the merging of property and finances, assets or even business interests that require protection. These discussions are becoming more important these days as people are starting to live together and/or marry later and often have established investment and property portfolios, significant superannuation, an established business or even an interest in a family run business. BFA’s can also be useful to those contemplating marrying (or entering into a de facto relationship) for a second time who want to secure for themselves and their children from previous relationships assets that they have acquired up to that point.
To properly protect yours, and sometimes your wider family’s assets, it is important that couples have practical discussions with each other so at least everyone is on the same page when it comes to each other’s financial circumstances. If it becomes apparent that each party requires or agrees that some assets should not be included as ‘relationship property’ or agree on their intention of what will happen to their property in the event that something does go wrong with their relationship, then you should both seek legal advice immediately to discuss the preparation of a BFA.
There is no ‘one size fits all’ agreement, they must be each drafted to suit your particular circumstances and they must meet specific legal requirements including both parties each obtaining independent legal advice. Without proper compliance, a poorly prepared BFA is not legally binding and therefore worthless.
So for all the romantics out there a BFA can actually be a very considerate and caring thing you can do for each other. You will ensure that you both protect assets that you each agree to protect and you provide each other with certainty as to how the assets are to be divided in the event of a relationship breakdown saving on the stress and significant costs that are often a consequence of Family Court litigation.
Even though BFA’s are commonly known as pre-nuptial agreements, you can enter into this type of agreement before, during or after marriage or entering into a de facto relationship and they can be prepared to include either all, or only certain specific assets of each party. If you are considering whether a BFA is relevant to you or can assist you, please contact us to have a quick informal chat about whether this option is right for you.