Pre-nup or pre-yup: Pros and cons of prenuptial agreements

Depending on your outlook, a prenuptial agreement can either be a prudent measure designed to protect the individuals in a relationship and their financial interests, or an affront to romance and the spirit of saying ‘I do’.

The idea of discussing the demise of your marriage before it has even begun can make even the mere concept prenuptial agreements a bit of a turn off for some. But considering the researchers at McCrindle estimate that one in three Australian marriages will end in divorce in 2019, Kanye West’s hollers of “We want prenup! We want prenup!” may be ringing true for some Australian couples.

With that being said, research conducted by Canstar reveals only 6% of married couples in Australia currently have a prenuptial agreement. While over 91% admitted they don’t have a prenup with their partner, a further 3% were unsure if they have the legal document in place.

Canstar’s finance expert, Steve Mickenbecker, believes Aussies should be more concerned about protecting their assets.

“We can see that people are marrying later in life, meaning they have more assets that could need protecting if the relationship breaks down,” he said. But he added that “it’s worth considering that a prenuptial agreement may not necessarily produce a better outcome than a divorce settlement.”

We explore what’s involved with with a prenuptial agreement, with the help of family law experts.

What is a prenup?

A prenuptial agreement or ‘prenup’ is a legal agreement between the partners in a couple which outlines how their property and assets will be dealt with in the event of their relationship ending in separation or divorce. It’s also known as a ‘Binding Financial Agreement’ (or BFA for short), which is the official name for this kind of arrangement under Australian family law.

While the term ‘prenup’ suggests they’re most commonly made before a marriage starts, BFAs can also be made during a marriage, after a divorce or separation, or indeed between de facto partners. Without a prenuptial agreement, divorce and separation arrangements are generally settled in court using Family Law Act principles to divide assets and reach a settlement. If a valid prenup is in place, it overrides this. 

Luke Cudmore, principal lawyer at Cudmore Legal, explains to Canstar that the main purpose of a prenup is to give couples more control over how a split would be handled. 

“By making financial arrangements the couple are saying, ‘we do not want the Family Law Act to apply to our property split if we separate. Instead, we want the property split to be governed by the terms set out in our agreement,’” he says.

Wedding toppers divorce money prenup
Source: Nancy Beijersbergen (Shutterstock)

Who is involved in a prenuptial agreement and what does it cover?

A prenup is generally made between the parties in a relationship and Tuskeen Jacobs, accredited family law specialist at Rostron Carlyle Rojas Lawyers, explains to Canstar that anyone over 18 years old, whether in a same-sex or heterosexual relationship, contemplating marriage or already in a de facto or married relationship, can enter into one. 

In addition to property and assets, your prenuptial agreement may include arrangements relating to financial support for either spouse. Partners can also make arrangements to include superannuation so that it may be dealt with specifically in the event of separation.

But are prenups only for the rich and famous? Not necessarily, according to Luke. “If people want to enter into fair and reasonable arrangements between themselves, I don’t think it’s necessary that they actually have money to protect.”

As a prenup is generally arranged at the beginning of a marriage or partnership with the future in mind, conditional arrangements may also be included in it. These could be events that might happen down the line such as the birth of children or the potential for an asset, such as a family business, to increase or decrease in value. 

“In circumstances where two people want to ensure that the work that they put in during a relationship is reflected by what they get out in the end, they can and should consider a prenuptial agreement,” Luke says.

How does a prenup work?

In order for a prenup or other financial agreement to be legally binding in Australia, there are some strict rules that must be followed when it is being drawn up. 

Firstly, both parties must be on board and sign the agreement freely and without pressure or threats. According to Luke, you both must have received independent legal advice so that you are aware of the effect of the agreement, your rights and the advantages and disadvantages of the agreement. 

“Some prenups have fallen down because one of the parties did not know English very well,” he says. The consequence of this is that any prenup that was not created properly can be overturned in the Family Court.

Although the inclusions or terms of a prenuptial agreement can be flexible, Tuskeen says that a typical starting point for a prenup is to consider what assets both parties have when entering the relationship. She adds that generally, “agreements will say ‘What’s yours is yours and what’s mine is mine in the event of separation, but anything we acquire jointly during the relationship will be shared, either by dividing the assets or selling them and splitting the proceeds.’”

What are the potential pros and cons of a prenup?

When deciding whether or not to get a prenup, it may be wise to consider both the pros and cons before committing. 

Some possible pros of a prenup

Peace of mind

According to Luke, the peace of mind that can come with knowing you have made arrangements for the future is a potential benefit of having a prenup. “The parties will have clarity going forward with respect to their financial circumstances post-separation, and they can freely invest and contribute their money to the relationship knowing that they will receive a direct benefit from their investment.”

Greater control over the outcome for those involved

Another potential positive of a prenup, according to Luke, is that it would ensure that your finances are not subject to the Family Court and would instead be divided based on what the couple agreed. He adds that this could be a positive outcome because “in some circumstances, the Family Law Act can result in unjust outcomes with respect to property settlements, particularly in longer relationships where there is an earning disparity between the parties.”  

Can save you money and stress in the long run

Tuskeen also highlights that while a BFA may be a costly and complex document to create with both parties needing to pay for legal representation, the financial and emotional costs of taking legal action to resolve disputes via the court system or dispute resolution can be much higher. She pointed out that going through the courts still does not always guarantee a desirable outcome for both parties. 

“The cost to litigate in Australia is astronomical,” she says and notes that in Australia it is not uncommon for a one-day trial to come with a six-figure bill at the end, while couples may need to wait as long as two years for their day in court.

May provide financial empowerment for both parties

Tuskeen says prenups can provide people with more autonomy to negotiate financial matters when they are still happy and in love. 

“They [prenups] are designed to empower both parties entering into the agreement, as each party is negotiating the terms at a time where there is harmony in the relationship and where there is not an imbalance of power, as sometimes occurs at separation.”

Prenuptial agreement children
Source: Nancy Beijersbergen (Shutterstock)

Some possible cons of a prenup

The cost

The cost of having the agreement drawn up and the fact that both partners must receive independent legal advice can make a getting a prenup a costly exercise.

May represent a better deal for one partner

There could be potential for the agreement to put one individual – usually the one with the most assets – in a position of control in the relationship. According to DCH Legal Group, even if the agreement represents a “bad bargain” for one of the parties, it will still apply in the event of a separation.

Can’t always account for the unpredictability of relationships

Tuskeen explains that it can be a challenge to come up with an agreement at the outset of a marriage or de facto partnership that is conditional on events that may or may not happen in the future.

“There’s a number of different variables that we try to include in financial agreements, such as the length of the relationship and the children that they may have, but we don’t have a crystal ball,” she says.

“If you sign up to a financial agreement where you’re contemplating that you’ll have two children but you end up with four and you’ve been out of the workforce for 10 years, the $1 million that you agreed to 20 years ago may suddenly be not as much as you thought,” she says, warning that “while you’re both agreeing to it now, you’re waiving your right to dispute it in the future.”

Can imply an absence of trust

The very fact that a couple is considering a prenup can sometimes be viewed as an admission that there is a lack of trust in the relationship. This perception may be difficult to shake.

Is there a positive way to approach a prenup with your partner?

Broaching the topic of getting a prenuptial agreement with your partner can be daunting. But if you decide that it’s the best option for your financial future, there may be ways to approach the discussion openly and positively with your partner.

“I think if you are contemplating it, you need to have a discussion relatively early in the relationship, as unromantic as that might be,” says Tuskeen. “It’s a conversation where you say to the other person, ‘look, I love you, I think we’re going to be together forever, but I don’t want you to feel like you can’t leave the relationship because you’re financially dependent upon me.’”

Luke recommends being clear with your partner about what you plan to do as a couple with your combined finances and other resources, plus any expectations you each have about the assets you already own as individuals.

“I think it’s worth, at the very outset of your relationship, having a good honest chat with your partner and saying, ‘look, what do you want to do?’”

“If there is a discussion and there is an expectation that you will keep what you already have, then the parties might consider entering into a prenup,” he says.

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