A prenuptial agreement is a tool that can minimize the financial harm caused by a second divorce

After a first marriage ends in divorce, many people are wary about marrying again and exposing themselves to additional financial pain. That is particularly true when a first divorce caused a financial setback. Nobody wants to recover from a second setback following a second divorce.

Perhaps, as the saying goes, love conquers all, but there is never any assurance that a second marriage will be more successful than a first marriage. We all hope that marriages will last forever but hopes do not always coincide with reality.

One way to protect yourself before entering into a second marriage is to make a financial agreement with the person you plan to marry. Those agreements are commonly referred to as prenuptial agreements (or “prenups”) when they are made in contemplation of marriage.

The Family Law Act permits individuals to make a financial agreement before they marry or during a marriage. Making the agreement before marriage, while both members of the relationship are still able to discuss financial issues without the baggage that comes from an unhappy marriage, is often the wisest choice.

Who should get a prenup?

If you have no assets and your income is low — in other words, if you have nothing to protect — you may not need a prenup. If you are marrying someone with a better financial position than your own, you might not want a prenuptial agreement. On the other hand, if you own significant property, have a good income or expect to have one in the future, or will likely have a significant superannuation interest in the future, you should consider protecting yourself with a financial agreement.

What does a prenup cover?

The terms of a prenuptial agreement are a matter for you and your intended spouse to decide. Typical terms of a financial agreement include:

• Whether property brought into a marriage will be returned to its original owner after separation
• How property will be managed (and by which spouse) during the marriage
• How property acquired during the marriage will be divided
• Whether one spouse will pay spousal support (alimony) to the other and if so, the amount that will be paid (or a formula for calculating that amount)
• Whether one or both spouses will be required to make the other a beneficiary on a life insurance policy

Binding financial agreements

The courts will generally enforce the terms of a prenup that was made in good faith. There is a risk, however, that a judge will decide that the prenup is unfair and will disregard it in favor of doing what the judge considers to be equitable.

Fortunately, there are steps you can take to increase the likelihood that the court will follow your wishes as expressed in a prenup. To make a financial agreement binding on the court, each party to the agreement must:

• Place the agreement in writing and sign it.
• Obtain independent legal advice. “Independent” means you need to see separate lawyers that do not practice together in the same firm.
• Obtain a certificate from the lawyer that establishes you were given the explanation and advice that the law requires.
• Make a full and adequate disclosure of your finances, including income, assets, and debts.

There are circumstances under which a binding financial agreement can be set aside. In most cases, however, the financial agreement really will be binding upon the court if both parties comply with requirements listed above.