Will a Financial Agreement (pre nup) really protect you?

When people hear the words “pre-nup” or “binding financial agreement”, the reactions are often mixed. Some see them as unromantic or pessimistic, while others view them as a sensible form of insurance.

In Australia, these agreements are formally known as Financial Agreements, and when done properly, they can be a powerful tool for protecting assets and providing certainty.
 

But do they actually work, and are they always worth it?

Happily, the short answer is yes: but only if done correctly, and in the right circumstances.
 

What is a Financial Agreement?

A Financial Agreement is a private contract between two people that sets out how assets, liabilities, and financial resources will be dealt with if the relationship breaks down. These agreements can be entered into:

• Before marriage or a de facto relationship – sometimes referred to as a “pre-nup”.
• During the relationship.
• After separation or divorce.

Distinct from Court Orders, Financial Agreements allow couples to opt out of the Family Court’s discretion. Instead of a Judge deciding what property settlement should occur, the Financial Agreement governs the outcome.
 

Why you might choose a Financial Agreement

The most common reason people enter into a Financial Agreement is certainty. Relationship breakdowns are emotionally charged and legally complex. A properly drafted Financial Agreement can reduce uncertainty, legal costs, and conflict at an already difficult time.

Financial Agreements are often used to:

• Protect assets accumulated before the relationship.
• Preserve family wealth, inheritances, or gifts.
• Safeguard business interests.
• Avoid lengthy and expensive Court proceedings.

For people entering second relationships, or those with children from a previous relationship, FAs can also  be particularly valuable.
 

Are Financial Agreements legally binding?

Yes, but only if strict legal requirements are met.

Under Australian law, these include the FA being in writing and signed by both parties, each party receiving independent legal advice which covers specific issues, and each party’s lawyer providing signed certificates confirming the advice.

Likewise, despite their benefits, FAs are not utterly bulletproof and can be set aside, including due to a failure to comply with the above legal requirements, or in other circumstances such as where the agreement was obtained by fraud or non-disclosure, where one party was pressured, coerced, or placed under duress, or where circumstances have changed significantly, particularly relating to children, making the agreement impractical or unfair.

A common misconception is that a template or “cheap” FA will offer protection. In reality, poorly drafted agreements are one of the most common reasons they fail.
 

Are Financial Agreements always a good idea?

Not necessarily.

They are not suitable for every couple or every situation, and may be less appropriate in certain situations including where both parties have similar financial positions, where assets are minimal and unlikely to grow significantly, or where the cost of preparing the FA outweighs the benefit.

In these cases, the Family Law Act’s existing framework for property settlement may already provide a fair and flexible outcome.

Further, whilst Financial Agreement can deal with property division and spousal maintenance, they cannot determine parenting arrangements or child support in a binding way. Alternative or supplementary documents, such an Application for Consent Orders or a Binding Child Support Agreement, may be required.

Timing is also very important. Agreements signed well in advance of a wedding or cohabitation, with full financial disclosure and genuine negotiation, are far more likely to withstand scrutiny, than something which is rushed right before an important event.
 

So, will a Financial Agreement protect you, and is it right for you?

A Financial Agreement can provide very strong protection, but it is not a one-size-fits-all solution. It must be tailored to your circumstances and meet your specific objectives.

There are complex and significant issues, and the law has changed a number of times in relation to Financial Agreements. It is therefore important to seek specialist family law advice.