It is possible for persons commencing a relationship to have an agreement that deals with what is to happen to each of their assets, in the event the relationship breaks down. 

This agreement is what Family Lawyers refer to as a ‘Section 90B Agreement’ (before marriage) or a ‘Section 90UB Agreement’ (before a de-facto relationship). The section relates to specific sections of the Family Law Act 1975. 

Such agreements are commonly referred to as a ‘prenuptial agreement’ or, ‘pre-nup’.

A prenuptial agreement can cover the following: 

  • In the event of a breakdown of the marriage and/or de facto relationship, how any or all of the property, including superannuation, of both parties is to be divided between them;  and 
  • When the assets and superannuation are to be divided and how; and 
  • Lump sum or ongoing weekly/monthly financial support for one of the parties, after separation, if necessary. This is known as ‘maintenance’. The Agreement may provide that neither person will make a claim for maintenance in the event of separation. 

A Case study - let’s consider the following scenario: 

Mr P and Ms S met via an online dating agency and have fallen deeply in love. They now wish to live together and to reside in Mr P’s residence in Ivanhoe. They plan to marry in 12 months’ time.

Mr P:

  1. Is 59 years of age and has previously been married. He is divorced from his first wife and has formally resolved all outstanding property issues with her. 
  2. Has two adult children, who are financially independent. He wants to protect his assets and ensure that in the event of his death, all of his Estate goes to his children. 
  3. Owns a property in Ivanhoe, and an investment property in Eltham. There is a mortgage on the Eltham investment property. 
  4. Is employed as an IT specialist and earns approximately $150,000 per annum.
  5. Has superannuation of approximately $600,000.

Ms S:

  1. Is 60 years of age. She has just divorced her previous husband and has received a property settlement.
  2. Has an investment property (without a mortgage) in Reservoir and she resides in a unit in Heidelberg. 
  3. Is employed as a Doctor and is earning approximately $250,000 per annum. 
  4. Has superannuation of approximately $800,000, and one third share in the medical practice where she is employed.
  5. She has three adult children from her previous relationship, who are financially independent.

Given the facts outlined above, how would a prenuptial agreement benefit Mr P and Ms S?

  1. Given both parties have been through messy divorces in the past, they are both wary that if their relationship breaks down in the future, they:
    Want to have a degree of control as to how the assets are to be divided. 
  2. They don’t want to have to go to Court. 
  3. They would prefer to enter into a private agreement now which will give them certainty and peace of mind, moving forward. 
  4. Want an agreement that is ‘fair’ to both parties.

In this case, a prenuptial could cover several things, including:

  1. The definition of ‘separate’ property versus ‘joint’ property. That is, pre-relationship assets versus assets acquired together during the relationship. 
  2. In the event that the parties separate, Mr P will retain all of his pre-relationship assets and superannuation, which includes his real estate and superannuation. 
  3. Ms S will retain all her pre-relationship assets and superannuation, which includes her real estate, superannuation and her one third share in the medical practice. 
  4. That any property Mr P and Ms S purchase together, during the relationship, can be divided upon separation in accordance with their respective financial contributions, or as directed by the agreement.
  5. If agreed, any increase in the superannuation of both parties during the relationship could be divided equally upon separation. Or, Mr P and Ms S could agree that neither will make a claim over the other’s superannuation, even if it increases substantially during the relationship. 
  6.  That neither Mr P or Ms S will make a claim for maintenance from the other, even in the event of a change in circumstances, including illness, disability, unemployment or bankruptcy, for example. 

If prepared and executed properly, the agreement will be binding upon Mr P and Ms S. There are only very limited circumstances in which the Court may set aside a pre-nuptial agreement. 

Crucial to the proper preparation of prenuptial agreements is that each person makes full and frank financial disclosure to the other. There also needs to be agreement on the values of each other’s assets and if not, expert valuations must be obtained. The more thorough the enquiry regarding each of the assets and their values, the more likely the agreement will be upheld down the track in the event of a dispute. 

Another important legal requirement is that both parties to the agreement must obtain independent legal advice regarding the nature and effect of the agreement, and the advantages and disadvantages of entering into the agreement. This advice must be obtained prior to signing the agreement. 

Prenuptial agreements are complex, and in most cases require each person to the agreement, and their legal representative, to predict what may happen in the future. For this reason, preparation of a pre-nup can be costly. However, if we consider the case study above, pre-nups are generally made to protect assets of significant value and are therefore money well spent. 

This article is intended to be general information only. It is not legal advice. If you would like to discuss your options in relation to a prenuptial agreement, please do not hesitate to contact our Family Law team on (03) 9435 9044.