Pre-nuptial and cohabitation agreements

Parties about to embark on a relationship or marriage are increasingly turning to financial agreements, sometimes called cohabitation agreements or pre-nuptial agreements, as a way to provide some security about what may occur in the event of a breakdown of that relationship.

Should I enter into a financial agreement?

There are pros and cons of entering into agreements of this kind. The argument in favour of an agreement is that it buys you some peace of mind and enables you to resolve a potential dispute at a time when you come to the matter with a clearer mind.  Entering an agreement can be therapeutic for a relationship in clearing the air on issues and has the potential for making a stronger relationship and providing some certainty on financial issues which can be a difficult matter to discuss at the best and worst of times. Complaints regarding financial troubles and lack of transparency in financial dealings are one of the major sources of marital disharmony and breakdown of relationships.

Similarly, there are those that would argue that entering agreements is unromantic and divisive and a breach of the trust in a relationship.  However, there is nothing quite as unromantic as a bitterly contested property settlement at the back-end of a relationship where the costs for each party could run between $50,000 to $100,000 (at least), leaving aside the time involved and the stress and uncertainty associated with unresolved proceedings or litigation.

A financial agreement may not be suited to everyone entering a marriage or relationship including for personal, religious, cultural or other reasons. 
 
However, we typically find the following people may benefit from entering into a financial agreement:

1. people who have accumulated  significant wealth prior to the relationship and they want to protect that wealth;
2. a person who is part of a wealthy family and they  want to protect their potential inheritance or any potential gifts or contributions made by their family to them during a relationship;
3. a person who is part of a family enterprise (including farmers and they do not want a future separation to interfere with the operations of the enterprise;
4. families with cultural requirements for an agreement;
5. a person who is entering their second or subsequent marriage or relationship and they want  to protect the interests of children from previous  relationships or they want  to avoid future litigation if the  marriage breaks down; or 
6. a person who otherwise wants certainty of distribution and provision upon separation and wants to reduce the risk of litigation and significant (emotional and financial) costs associated with litigation.

Financial agreements can be entered either before or after your marriage or before or after you commence a de facto relationship. There is no real difference as to the ultimate effect of the agreement.

What is involved in entering into a financial agreement?

No one agreement should be the same as the next. However, broadly speaking, the procedure for entering such agreements is as follows:

1. Each of you is required to be represented by an independent lawyer. 
2. The solicitors will need to take detailed instructions from the parties about their financial circumstances, future intentions (for example, regarding children), contributions already made to any existing property, estate planning requirements (for example, for the protection of children from other relationships) and the terms of the agreement they wish to enter.
3. Each solicitor should provide each party with a detailed letter of advice.
4. Each party should disclose their financial position to the other and, in the process of each of you making full  disclosure of your property,  liabilities and financial  resources, it may be necessary for valuations to be obtained and accountants engaged to assist in a due diligence type enquiry.
5. The agreement is drawn and negotiated.
6. When finalised, the agreement is signed by the parties.
7. The solicitors are required to execute statements confirming that they have provided the necessary advice to their clients which form part of the agreement.  

Can I go to any solicitor for a financial agreement?

Your choice of respective solicitors can influence the outcome of the agreement.
  
Financial agreements, if properly prepared, are binding and enforceable in Australia. Specialist family law advice is therefore essential for anyone contemplating entry into a financial agreement. We do not recommend to people contemplating entering a pre-nuptial agreement that they obtain a kit. There is a minefield in entering these agreements with strict legal requirements to be met. The lawyers engaged should have experience in drafting agreements of this kind and knowledge of the court’s approach to both agreements and financial matters.
  
This is particularly where a financial agreement determines your respective entitlements:

• at a time unknown (if at all) in the future;
• where the asset pool at the time in the future is unknown;
• where the value of assets at a time in the future is unknown;
• where your rights before the court at that time in the future are also unknown;
• where monetary and non-monetary contributions at that future time are unknown;  and
• where your respective financial circumstances (including your earning capacity and health) at that future time are unknown.

For these reasons, it is important to engage specialist family lawyers only.

The court’s approach to financial agreements

Since 2000, parties to or entering a marriage, and since 2009, parties to a de facto relationship have been able to enter a financial agreement (including a pre-nuptial agreement) detailing how the parties’ property and spousal maintenance will be dealt with upon the breakdown of their relationship.

Almost two decades since the introduction of financial agreements under Australian law, we finally have clarity from the court about its approach to financial agreements.  

The first 10 – 12 years were marred with many reported decisions of the court finding agreements entered were not binding or setting aside the agreements due to non-compliance with the legislative requirements, which we will turn to shortly.  

The Family Law Act was amended to address the concerns raised to give effect to the intent of our Commonwealth Government to enable parties to enter a private agreement that will avoid intervention by the court. The legislation is currently under further review with amendments in the Bill currently before the Commonwealth Parliament designed to bolster the agreements and ensure parties are held to those agreements.

The Family Court is now recognising the autonomy of an individual to enter a contract (financial agreement) which the court will no longer interfere with.  It further enables parties to enter their own agreement without invasion of privacy and potential damage to their reputation, without the scrutiny of the court and risk of publicity. We recognise this is particularly important for high net wealth individuals, celebrities and other persons with a profile. That said, these agreements have a broader utility for anybody keen to avoid court proceedings should, for whatever reason, their relationship end.

• It is clear from the current line of authorities of the Family Law Courts in Australia, that provided:
• the financial agreement is binding; 
• the parties have made a fully informed decision to enter the agreement; 
• each party is legally represented; and 
• there are no grounds to vitiate the agreement;
• then it does not matter if the agreement is fair or a bad bargain, the parties will be held to their agreement.

How much does it cost?

If a party wishes to enter into a financial agreement, they should do so carefully and with the benefit of specialist legal advice. Generally, an uncomplicated agreement should cost each party $5,000 to $10,000 plus GST.  As referred to above, each party will need to be separately represented.  

If there are complexities (e.g. companies or trusts are involved or you or your partner are offshore, have property situated offshore and you plan to live and work either in or out of Australia) then you should expect to pay at least $10,000 to $20,000 plus GST.  

While these costs may seem high, we warn anyone interested in entering into these agreements not to cut corners.  If the agreement does not comply with the strict requirements of the Family Law Act, or sufficient attention has not been given to the content of your agreement and how you intend to divide your property in such a way as to limit the potential challenges available to set aside your agreement, then you will have arguably wasted your time and money with the document entered by you.  It may not be worth the paper it is written on.

The contents of this paper are not intended to be a complete statement of the law on any subject and should not be used as a substitute for legal advice in specific fact situations. HopgoodGanim Lawyers cannot accept any liability or responsibility for loss occurring as a result of anyone acting or refraining from acting in reliance on any material contained in this paper.