Couples who are about to marry or planning on living together for at least two years can sign “pre-nups”, written agreements that are designed to protect “their” assets when the relationship ends
The family lawyers at Mellor Olsson often take calls about pre-nups. Most commonly, we hear from:
- people re-partnering after an unhappy legal process following the end of a previous relationship;
- a wealthy person seeking to protect his or her assets from a less affluent new spouse;
- a financially disadvantaged party prepared to “sign anything” before marrying their wealthy partner;
- people marrying or living with a new partner, later in life, and looking to protect their individual assets.
It often comes as a surprise to such clients to hear that we advise against such agreements.
Firstly, it’s an unpleasant process
Agreements can be upsetting for people during the negotiating and drafting process. In order to prepare a suitable agreement, people have to anticipate what would be fair terms for themselves and their spouse should they separate in say two years, five years, ten years, twenty years and any period of time in between or beyond.
We have seen firsthand the disharmony this can cause in relationships while negotiating back and forth about percentages and amounts covering a range of possible future scenarios. Couples are inevitably forced to be “on opposing sides” in their thinking, rather than enjoying time with a loving partner with whom they are anticipating building a happy life.
Family lawyers are required to identify, and delve into, a range of facts and figures relating to people’s finances, health and employment prospects. The volume and searching nature of these enquiries tend to upset and annoy people who just want “something simple”.
Secondly, experience has been a harsh teacher
Despite the Family Law Act being amended to enable people to sign agreements which the legislation states are binding, there have been many instances in Australia where a relationship has ended and a party who is unhappy with the “pre-agreed” terms tries to obtain an order from a court setting aside the agreement and imposing different property settlement terms instead. This change of heart means both parties incur additional costs, delays and general uncertainty.
Depending on the outcome of the court process, a former client may decide to sue their former lawyer for:
- signing that client up to a poor deal that was deemed to be binding after all;
- signing that client up to a deal that he or she then had to pay to get a court to set aside; or
- signing that client up to a deal they are now unhappy about, who, having failed to get the terms set aside by a court is then ordered to pay the legal costs of the other party.
There has been an increasing willingness by Australian family courts to overturn these types of agreements. There are a range of grounds on which they can be challenged, including because they were not drafted properly, they were signed under duress, one partner did not fully disclose their financial assets, or there has been a significant change in the couple's circumstances since the agreement was made. Litigation claims involving pre-nuptial agreements have become commonplace and there is growing concern that their effectiveness is generally limited.
With agreements continually being overturned in court or the subject of litigation, and the risk of negligence claims arising from a failed pre-nuptial agreement increasing, more family lawyers are simply choosing not to offer this service. Those who do are often choosing to charge a premium for a standard agreement in order to offset the potential cost of a negligence claim.
So what should I do instead?
At the end of a relationship in order to divide the property ‘fairly’, it has always been necessary to consider what each person brought into the relationship at the beginning, or acquired by way of an inheritance or financial gift from other family members or compensation claim lump sum during a relationship.
With this principle in mind, we recommend that people develop a collection of documents that give a “snap shot” of themselves (and of their spouse if they have access to the records) both at the beginning of the relationship and along the way.
You should keep valuations, list of assets for insurance purposes, receipts for purchases, bank statements, tax returns, prior Family Court orders, and letters from lawyers about inheritances or compensation claims. Also keep records of bank loans, credit card statements, tax liabilities and personal loans.
Sometimes if there has been a long time for example, a year or more, between separation and the time when a property settlement is being considered, documents such as these are useful for assessing contributions after separation too.
That way if you find yourself in a position where you are separating from your partner, you will be able to arm your lawyer with the necessary documentation to argue for your fair share of a net pool of assets. That can then be matched up with the other relevant factors which are each person’s health, employment and prospects and needs for the future.
If you are facing any of these issues, or if you have already signed a pre-nuptial agreement and would like specific advice based on your circumstances, you are welcome to contact the lawyers at Mellor Olsson to discuss your situation.