In case of heartbreak
A discussion about finances is as important as discussing career, children or where to live.
The news that Olympian Grant Hackett is suing his former legal team over a botched prenuptial agreement has sent a shiver down the spine of the legal fraternity. It is also a timely reminder to the soon-to-be-wed that prenups are not watertight.
Hackett has reportedly launched Supreme Court action against his former solicitors, arguing that his prenup was drafted in a way that did not comply with the law.
A family law specialist with York Family Law in Sydney, Nabil Wahhab, says there is a trend to sue solicitors for negligence in the drafting of prenuptial agreements when they don't hold up in court.
"I haven't seen any [negligence] cases in court, but I am hearing rumours of cases being settled out of court," Wahhab says.
Prenuptial agreements, more formally known as "financial agreements before marriage", have only been legally binding since December 2000, when the Family Law Act was amended to include them.
Wahhab says the original purpose of prenups was to protect the financial property of people entering into second or subsequent relationships. Far from being mercenary, people will say they love their new partner but they want their children from a previous marriage to inherit the house or other assets.
Unfortunately, not everyone is so altruistic. "Twelve years on, we are getting some wealthy people with a prospective spouse who has no financial assets saying they should get nothing if the relationship ends. It's unjust, especially after a lengthy marriage," Wahhab says.
A family law specialist with Kliger Partners in Melbourne, Katrina Bristow, says there are guidelines laid down to make prenups as watertight and fair as possible (see box). "But you can't guarantee a court will not set them aside, because you can't guarantee what will happen in a marriage," she says.
If an agreement is unjust, poorly drafted or the wording is loose, it is more likely to be set aside by the courts. Sometimes a prenup is challenged simply because it failed to take into account a couple's changed circumstances. They might set up a business, structure their affairs in a trust that is difficult to divide, or they might have a disabled child who needs special care.
Prenups are still regarded as passion-killers by romantics, or a sign that your partner doesn't trust you. But this need not be the case.
Prenups can take the pressure off couples heading into marriage, especially if there are children from previous marriages; a disparity in wealth; or the expectation of a large inheritance the beneficiary wants to quarantine from a divorce settlement. "Often it is the parents telling their son or daughter to [get a prenup]," Bristow says.
In a perfect world, bad agreements would get knocked on the head at the outset thanks to the requirement for both parties to have independent legal advice. But Wahhab has seen cases where the less-wealthy partner signs under duress, even when they have received legal advice not to sign.
He has even seen threats to have an overseas-born spouse deported if they refuse to sign.
A prenup is a contract and, like any, should not be negotiated in haste. It takes time to discuss the issues, engage independent legal advice, negotiate, and perhaps make a counter-offer.
Some are drafted with a sunset clause ending the agreement in, say, 10 years if the marriage lasts. Others say if the relationship lasts five years, this is how we will divide our property; if it last 10 years, this is what we'll do, and so on.
"It is a bit like a will or an insurance policy; you can't just put it in a drawer and forget about it," Wahhab says. "If your circumstances change, you need to revisit your prenup and update it."
Sue Yorston of Relationships Australia, which conducts pre-marriage counselling, agrees. Now that people are staying single longer and acquiring more assets, or bringing assets from past relationships to a new relationship, she says a discussion about finances is as important as discussing expectations about career, children or where to live.
"These would all be considered non-romantic subjects, but not discussing them can lead to conflict in the future," Yorston says.
"Relationships are about disagreements as much as agreements. Learning to manage disagreements is what makes for success."
When people are in love they assume it will last forever, but with one in three marriages ending in divorce, one in three prenups could come into play.
It makes sense to spend a few thousand dollars on a prenup at the beginning of a relationship rather than tens of thousands on lawyers' fees at the end. Just make sure it will pass muster when it matters.
The lowdown on prenups
An increasing number of Australians use prenuptial agreements to stipulate how financial assets, such as a house, a business or super, will be divided if they separate. Married or de facto couples can enter a binding financial agreement before marriage or at any time during their relationship.
A prenup can be simple, stating that what each party brings to the marriage is theirs but any future property is to be divided according to the percentage each contributes.
A large inheritance, a business or superannuation can complicate matters. To be legally valid, both parties must have independent legal advice and they and their solicitors must sign off on the agreement.
Solicitors must state that their client has been advised of the advantages and disadvantages of entering into the agreement.
While prenups are legally binding, they don't affect the rights of children to child support, and the Family Court has the power to overturn them if there is evidence of fraud or unconscionable conduct. They must also be fair.
"Someone might anticipate inheriting $10 million and don't want their wife to get her hands on it. That's totally unrealistic if the marriage lasts 10 years, they have children and the inheritance is received early in the marriage," a family law specialist, Katrina Bristow, says.
She says a prenup can cost from $3000 to $50,000 for more-complex agreements. By comparison, a property settlement in the Family Court upon divorce can cost anywhere from $5000 for a hearing to $500,000, where assets have to be valued, finances are complex and conflict is high.