Prenups: the pros and cons
OUTthere, Skywest in-flight magazine, March 2013
Binding Financial Agreements (BFAs), better known as ‘pre-nups,’ are a useful but no means watertight solution to protecting the wealth of you and your children. Although most people are familiar with the concept, BFAs are traditionally less common in Australia than the US. But in recent years I’ve seen a significant rise in clients coming to see me about BFAs.
In the past it was usually richer, older men marrying younger, asset-free women who wanted a BFA. These days I’m finding it is just as likely to be younger FIFO workers, male or female, who have accumulated significant savings and/or investments by working very long hours in remote locations. They now find themselves in relationships with partners who simply aren’t in their league, financially, and they are seeking protection for the assets they have worked very hard to accumulate.
hile some lawyers are skeptical about BFAs, others support their use. So what are BFAs, exactly? When might they be useful? And will they work when you need them most?
BFAs signed before a couple gets married serve the purpose of setting out the division of assets in the event of them divorcing, or for de facto relationships on the termination of that relationship. A BFA can also be used during an otherwise happy relationship to set out what happens if the relationship breaks down.
BFAs can also be used when a couple who are divorcing or separating are able to come to an agreement about a division of assets as an alternative to court orders. This can provide an effective short cut, enabling couples who are able to agree on a split of assets, to move on with their lives, rather than get involved in the litigation process and maybe having to wait many months for a judge to decide on the division of assets for them.
But BFAs are not straightforward. Asking your girlfriend or fiancé to sign a legal agreement spelling out the division of assets in event of divorce or separation is not an area where the law and human relationships sit comfortably. This will no doubt remain the case unless BFAs become more commonplace.
A second and a very important concern is that Courts across the country have set aside BFA’s for a variety of reasons. These include:
- Where the agreement was obtained by fraud, including non disclosure of assets;
- If the agreement was found to be unconscionable, for example if a woman can provide some evidence that she was ‘bullied’ or pressured into signing it;
- If there has been a material change of circumstances, such as the birth of child, so that the carer or child will suffer hardship if the BFA is not set aside;
- Where circumstances have arisen since the agreement was made which make it impracticable for the agreement or part of it to be carried out – for example, if a property which is the subject of the agreement has been sold.
- If there is a power imbalance between the parties, for example a wealthy older man and a young wife, where the agreement was only proposed at the last minute or where there is no provision for an increased settlement as the years of marriage increase, and so on.
- If one or both parties did not receive competent independent legal advice before the BFA was signed;
- If there was inadequate certification of independent legal advice; and
- If all parties were not provided with the document once signed and certified.
Being aware of the reasons why BFAs have been set aside in the past is of critical importance to anyone contemplating such an agreement. It is important to ensure that both the drafting of a BFA, and the process by which both parties negotiate and execute the agreement is carried out in such a way that it reduces the risk of a challenge in the future. It is important to ensure that both sides not only receive adequate, independent legal advice, but that this process is properly carried out and documented.
My own view is that BFAs serve a useful purpose in creating a legal obstacle and deterrent, notwithstanding the current willingness of judges to scrutinise and in some cases to set them aside. Individuals may be able to have a BFA overturned, but they would still have to take the matter to Court, run an argument that they were, for example, ‘bullied’ and then await the Court’s decision. The emotional and financial stakes and costs are therefore very much higher than if there was no BFA.
In summary, while a carefully drawn and correctly executed BFA may not guarantee a complete and irrevocable solution, used in conjunction with other legal protection, it can serve as a powerful deterrent.
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