Financial Agreements are Contracts Between Two People
Financial agreements are contracts between two people that determine how their assets will be dealt with if their relationship doesn't work out. Many people thinking about getting married or entering into a de facto relationship think about entering into a prenuptial financial agreement.
These agreements are attractive for a number of reasons - they allow people to protect assets when entering the second relationship, they can protect family wealth, and they can minimise conflict on the breakdown of a relationship, to name a few.
But it's not all good news clients should be aware that numerous legislative changes and court judgments have made prenuptial financial agreements fraught with danger.
Lawyers and clients must both be vigilant in ensuring that the proper procedures are adhered to so that the risk of the agreement being set aside (that is, cancelled by the court) is minimised.
So what can you do? Here are six simple steps to protect your financial agreement:
- Make it fair: pre-nuptial financial agreements are much more likely to be set aside if the provisions are far outside the range of outcomes a court is likely to reach.
To determine the range of likely outcomes, you must give detailed instructions to your lawyer about the history of your relationship and your contributions to the acquisition and maintenance of your assets.
- Consider the future: In short relationships, a court is likely to give much more weight to initial financial contributions than in a longer relationship.
If your financial agreement only has one possible outcome, it is unlikely that it will be within the range now and in the future. Think about what might be fair if the relationship broke down in two years, or if it broke down in ten years and how that might be different.
- Be accurate: Making a carefully documented disclosure of all of your assets and their values protects your financial agreement from being set aside because it didn't provide enough information.
Any significant assets like a house or a business should always be valued by an appropriately qualified valuer to avoid any argument that the valuation was unfair.
- Be prepared and take your time: Pre-nuptial financial agreements are complex documents and can sometimes take weeks to negotiate, draft and sign.
Financial agreements signed shortly before marriage are vulnerable to being set aside. Make sure you begin the process in time to leave an absolute minimum of two months between the final signing date and your wedding.
- Be flexible: Normal life events like the birth of children, serious illness or significant change in employment are all factors that can lead to financial agreements being set aside.
Make sure that you revisit your financial agreement when any major events happen in your life, especially to do with children. Another way to future-proof is to have a sunset clause so that the financial agreement can be renegotiated every five years and remain current and appropriate to your circumstances.
- Caution is the key: Financial agreements can be set aside if one person didn't really understand what they were doing, or if they felt forced into signing the document.
If there is any risk, it must be dealt with, whether by employing a qualified translator or getting an assessment of the emotional wellbeing of the other party.