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Are prenups worth it?

We are seeing more young couples seeking prenuptial agreements (or s90B Financial Agreements) amid first-home-buyer woes. High interest rates and house prices has seen an increasing number of our youth get financial support from parents – with strings attached. But are prenups worth it?

The Productivity Commission found that the average deposit has more than doubled from less than $50,000 to more than $100,000 over the course of a 20-year period from 2002 to mid-2022. This means that the average first home buyer deposit is more than 80 per cent of the average annual household disposable income. It is this difficulty to enter into the property market that has given rise to an increase in family contributions or loans that parents want to protect.

Of course, it’s natural for young people to want to enter into the property market with as much certainty and protection as they can. However, it is not surprising to see couples change their mind against getting one after they’ve received some genuine advice from our solicitors. This is unsurprising because where there is a committment to marriage, it’s meant to be for all time. With that mindset, it is difficult to enter into this committment with the view of “what’s mine is mine”.

It’s easier, however, for mum and dad to raise this, because if they’re loaning their child $200,000, they’re certainly going to want to make sure that it’s protected.

When should you consider a prenup?

Most couples will seek a prenup if there is a significant imbalance in assets, if there are children involved or if they have experienced a family court dispute in a previous relationship. Couple will want to protect their assets by way of a binding financial agreement for their children, and they don’t want to go down that path of litigation which is stressful and expensive. It causes irreparable damage to the relationships between people in most cases.

Drafted properly – meaning the prenup ticks the technical and legal requirements, such as both parties having received independent legal advice – it should stand up in court.

However, it can be overturned if a court finds any of the following as outlined in s90K of the Family Law Act:

  1. there was a fraud occurring at the time the prenup was drawn up;
  2. there was a failure to disclose a financial position;
  3. if it was drawn up to beat a separate creditor; or
  4. if by respecting the prenup, it causes hardship to a child in the relationship.

If a prenup doesn’t sufficiently consider potential changes in circumstances – such as the loss of a job, assets or the introduction of a child – it can be voided. Prenups signed under duress – for example in the case of Thorne v Kennedy [2017] where the agreement was foisted upon the partner mere days before the wedding – will raise eyebrows too.

Family law judges have a very wide discretion to determine cases, so when we’re advising you, we always make sure to say that we will do everything we can to assist the Court in finding that it is legally binding.

Critically, just because a prenup is technically unfair, that doesn’t mean it will be thrown out either. That’s where independent legal advice comes in. After all, what do you say when your lawyer tells you that the prenup your partner wants you to sign is actually a bad deal?

Not always the right choice

In most instances, we would recommend young couples away from getting a prenup. You do not need a financial agreement to be drawn up before a marriage, as it is something that can take place at any time; including after a divorce.

For example, if years down the track, the relationship is looking shaky and one partner believes they may soon receive an inheritance, a financial agreement can be drawn up then.

But if there are two people coming into a relationship with a car, a little bit of super and $10,000 in the bank, we would not reccomend going through the trouble of getting a prenup.

Parents wishing to protect financial support used to purchase a property can also protect that without a prenup. The same thing can be achieved through a loan agreement – which makes it clear that money provided is a loan rather than a gift. But it’s much better to draw up this sort of agreement when the loan is being advanced, rather than at separation.

Now, just because words are used that it is a “loan”, if there are no repayments made, no agreements or anything registered, then it is very hard to prove to the Court that the intention of the person who gave the money was that it was a loan. In such a situation, it is likely that the Court would find that the contribution was a gift.

Protecting a financial sum like this in a prenup isn’t always watertight. That’s because over the course of a 20-year relationship, for example, a court may well consider that one partner’s initial contribution was offset by the other partner’s contribution to the family unit over time. We discuss this element of property settlements in our article.

If you are in a relationship and are thinking of entering into a financial agreement with your significant other, our team at Just Family Law can certainly advise you on the most appropriate pathway for you. We will walk you through every step of the way and ensure that any agreement drafted is in accordance with your intentions. Give us a call on (03) 9793 7888 or send us an email at admin@justfamilylaw.com.au.

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