Vowing to make a fair pre-nup!
“Prenuptial agreements are a total waste of time.” (excerpt from Ocker Jones, Bush Lawyer Extraordinaire, ‘The Law: As I See It’) .
You may have come across this sentiment on social or mainstream media or possibly heard this from a friend or even a ‘bush lawyer’, or two. And perhaps there is some truth to this comment, you might think, after the High Court’s decision late last year in which the Court set aside a financial agreement between a husband and a wife, the underlying purpose of which was to protect the husband’s $18M estate Opening the floodgates to a host of claims that previously would not have seen the light of day, you might conclude.
Like anything in law, things are not as simple as our knowledgeable ‘bush lawyers’ might have us believe. Despite the decision of the High Court, the world was not torn asunder, and prenuptial agreements, like other agreements made under the Family Law Act 1975, continue to be relied upon by parties seeking to protect their wealth in the event of separation.
That said, we can take a few good things from the Court’s decision when advising clients about prenuptial agreements, in particular. Perhaps above everything, it prompts us to pose this question: What do we, as your lawyers, need to do to make your prenuptial agreement less vulnerable to successful attack by an estranged spouse who alleges the agreement he or she signed in the days or weeks before the marriage was unfair and should be set aside by the Court? The answer to that can be complicated but might be, for the purposes of this blog, reduced to the following four matters:
Matter No. 1
Make sure the agreement is ‘fair and reasonable’. Of course, that term is relative. It might be fair and reasonable to retain your $3M and the other party their $200,000 at separation if that couple separates in the months after marriage, or possibly several years after marriage. But does that agreement become unfair and unreasonable, say, five years into the marriage when the couple decides to separate on a final basis? And while that term may be relative, having an experienced solicitor cast an objective eye over your intentions with regard to the assets can only help in ensuring that the agreement is fair and reasonable. Another thing that will make the agreement fair and reasonable is if the parties have meaningfully negotiated the terms of the agreement over a period of time rather than simply saying to the other party, “Here it is. Please sign here.”
Matter No. 2
The prenuptial agreement should expressly address various circumstances which might arise during the course of the marriage, such as the birth of a child or children, the possibility of unemployment and even bankruptcy. You will find that thoughtfully prepared prenuptial agreements do consider those scenarios, as a rule.
Matter No. 3
The agreement should include provisions which accommodate the other party who is the less wealthy party. That might be as simple as including a provision or set of provisions which ensure that each party walks away with their separate property in the event the marriage has broken down irretrievably. That may not work if one party brought into the marriage the shirt on his or her back and little else. In that case you might consider including a ‘sliding scale’ provision in the agreement whereby the other party, the one with the shallow pockets, receives a sum of money should the marriage breakdown in, say, two years, with increases to the settlement sum each and every year of the marriage. Of course, it is sensible to impose a limit, both time and monetary.
Now, some might consider a provision of this nature to amount to nothing more than a reward system: if you can endure the marriage for this amount of time you get a prize at the end. Or it might be viewed by the one with the deeper pockets as paying insurance so that the payment of a greater amount can be avoided in the event of separation.
A third way of looking at it is this: agreements, like the one that was before the High Court, are set aside by a court because the Court considers the behaviour of one party in the making of the agreement to be less than proper. Improper behaviour is referred to as unconscionable behaviour. It is less likely that the behaviour of the party with deep pockets will be viewed as unconscionable if that party provides monetarily for the disadvantaged party post-separation. The $64 question is: how much ought to be paid at any given time in the marriage if that marriage was to come to an end? That is where a lawyer’s advice can be particularly useful, if not invaluable.
Matter No. 4
Each party – the party with the deep pockets and the party with the shallow pockets – should receive advice from a lawyer who has a considerable working knowledge of family law and each party should expect comprehensive, thoughtful advice from their solicitor. That advice should be in writing. If nothing else, this provides each party with an opportunity to reflect on the terms of settlement in a considered and careful way.
Indeed, the High Court, in the matter referred to above, considered the lack of time to reflect on the terms of agreement as one of a number of reasons why that agreement had to be set aside.
A prenuptial agreement is one of many agreements which are binding and enforceable on a couple under the relevant law in Australia, the Family Law Act 1975.
Aside from ‘prenups’ you have agreements which can be made during the course of the marriage, agreements between parties who are starting out in a de facto relationship or who have been together for some time, agreements after separation and agreements after divorce.
If any of this speaks to your situation you might want to obtain advice from a lawyer suitably experienced in this area of law.
Rob Douglas - Solicitor Lynch Law