Australia: Do I need a pre nup?

As a family lawyer, I often get asked by clients if they need a pre nup.

Clients who ask this question are usually people who:

  • Are young and are buying their first property
  • Have received a lot of money from their parents to put a deposit on their first home or had family members provide guarantees so that they can buy their first home
  • Have previously gone through a family law property settlement
  • Are entering into relationships later in life
  • Want to protect the assets that they have come into the relationship with, especially if they are particularly well off or had a lot of assets before the relationship started

Before deciding if you need a pre nup, it's important to know what a pre nup is, when you can use one, and what you can do as an alternative.

What is a 'pre nup' agreement?

A 'pre nup' is a term used to describe a kind of financial agreement that people enter into when they start a relationship and want to protect their assets. The term 'pre nup' or 'pre nuptial agreement' is an American term that we often hear on TV or in songs ('We want pre nup!'). In Australia, these kinds of agreements fall under a group of agreements called Binding Financial Agreements. A pre cohabitation or pre marital Binding Financial Agreement can be used to set out who is to keep what in the event that a break down of a de facto relationship or a marriage takes place.

What are some of the good things about pre nups?

A pre nup can be very useful if a relationship breaks down. As there has already been a decision about who is to keep what, it can save a lot of time and stress for everyone involved.

It can also means that parties avoid the need to extensively engage with lawyers or the court system at the end of a relationship.

The thing that most people prefer about pre nups is that it gives them security in knowing that hard earned assets, or gifts received from family, are protected and preserved during the break up process.

What are some of the bad things about pre nups?

There are a lot of down sides to pre nups that need to be considered. They are a very complex agreement that come with a number of considerations.

The main issue that my clients encounter is that both parties must have their own lawyers, even if they are completely in agreement about what is to happen. This is because the law in Australia sees these documents as potentially dangerous. As such, they require that everyone has a lawyer and has had proper legal advice before entering into this kind of agreement.

Another issue is with costs. As I mentioned, these are complex agreements and the costs associated with getting a pre nup reflect this. This is made even worse by the fact that there are two lots of legal fees involved in getting a pre nup drawn up.

And finally, there is a chance that because of changes in circumstances (like having children, or encountering severe health issues) that the pre nup will be contested and overturned at the end of the relationship.

So if I don't do a pre nup, what else can I do to protect my interests?

It is important to remember that once you enter into a de facto relationship or a marriage, you are choosing to enter into a special kind of financial relationship which gives the other person an entitlement to property (for more information about these financial relationships and consequences, click here).

So, if a pre nup isn't the way to go for you, or if your partner won't agree to enter into a pre nup with you, it's a good idea to do the following:

  1. Consider whether or not this relationship is something that you actually want to proceed with. This might sound harsh, but if you don't want share your property with another person if you break up, then avoid creating that financial relationship in the first place.
  2. Keep a paper trail. Make sure you are keeping proper records of what property or money you have at the start of the relationship, early in the relationship, and what you put into any purchase of property.

If your family are helping you out by providing money to you or a guarantee, make sure it is all written up properly so that there is a record. Keep invoices and receipts, and clearly note who paid for what, and when.

Start to keep proper files of bills and expenses, and records of how and when they get paid.

  1. Use internet banking properly. In my job, I use bank account statements all the time to try and prove that people have made certain payments or contributions. However, I rarely see these transactions properly described as anything other than 'internet bank transfer'. If there is an option for you to provide a description of a transaction, then do it. It is a lot easier to prove that $5,000.00 was used to pay a concreter if the transaction description says 'payment for driveway'.

While these can seem like daunting tasks, taking the time and care now could save you a lot of stress, and a lot of money in the future.

If you would like more information about pre nup agreements, or if you are going through a break up and want to know more about your property will be divided, contact us for a free consultation today.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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