Pre-nuptial Agreements under the Family Law Act:
The big issues for non-lawyers to remember
Pre-nuptial agreements are one form of Financial Agreement parties can sign and which are enforceable under the Family Law Act.
Having a client negotiate and ultimately, sign a prenuptial agreement with his or her fiancé can be challenging. They are documents that can cause a great deal of angst and potential disharmony, especially when presented by one party to another after they have become engaged to be married, when everyone is not contemplating separation and a breakdown of the pending marriage.
- an agreement is ultimately signed,
- the marriage takes place, and
- the parties then separate,
one party may then raise the issue of whether the agreement is in fact binding.
There is nothing worse from an emotional viewpoint than finding out the prenuptial agreement signed before marriage may be or is invalid. It may prove to be financially treacherous as well.
Unfortunately, many people have had their prenuptial agreements invalidated due to simple avoidable mistakes.
With some careful planning and the proper advice you can assist your client so as to limit the risk of having the agreement declared non-binding.
Here are some basic reminders.
- Timing - people often leave the negotiation and signing of their prenuptial agreement to the very last minute. In many cases, it is only a few weeks or even days before the wedding when the agreement is signed. If this happens one party may successfully argue he/she was coerced into signing the agreement. This can be avoided if the agreement is negotiated and then signed at least one to three months before the wedding date. Both parties should be given enough time to deliberate on the provisions of the agreement before signing it. Alternatively, provided negotiations are commenced well in advance of the signing of the agreement and the terms are agreed in advance it should not matter when the agreement is signed.
- Independent Legal advice - both parties must have independent, competent and separate advice. Each lawyer will needto make sure his/her client fully understands the content of the prenuptial agreement and the signing is done voluntarily after that advice is given. Solicitors who do not ordinarily practice in the family law area should not give advice on the contents of a prenuptial agreement.
- Duress or incapacity - if one party is pressured into signing the agreement or had no legal capacity to sign the agreement (such as being under the influence of drugs or mentally ill), the agreement is unlikely to withstand a challenge.
- Full Disclosure - when executing a prenuptial agreement, if one party doesn’t fully disclose all of his or her assets and liabilities, including assets held in trusts and companies over which that party has control, the Court may declare the agreement to be non-binding. Therefore, make sure your client understands the obligation to make full and frank disclosure and the need to set out the assets and liabilities of both parties in the prenuptial agreement.
- Prior written or oral agreements – there should always be a clause in the agreement that stipulates that any previous written or oral agreements are now superseded by the agreement.
- Ambiguous Wording - the enforceability of any legal agreement depends on the exact wording of the agreement and a prenuptial agreement is no different. If your client’s agreement has ambiguous wording, it may be successfully challenged in court. Precision is important.
- Predicting future financial transactions and involvement – it is impossible to predict the future. However, if your client has complex trust and/or corporate structures and there is even a remote possibility that your client will involve his or her soon-to-be spouse in some or all of those structures or that possibility extends to establishing new trust or corporate structures in which both parties are involved, make sure the prenuptial agreement allows for a disentangling of any arrangement. Advice should be given as to the wisdom of having the other party becoming involved in such structures on any level.
These are some of the most common issues that require discussion with clients who want a prenuptial agreement, whether you are a lawyer or not. It is not an exhaustive list. As always, seek the advice of a competent family lawyer before executing a prenuptial agreement.
Clelands Lawyers are one of the most respected Adelaide law firms who practice in family law. For more information our team will be pleased to assist you, contact Ben Farmer, Victoria Treloar or Shelley O'Connell