Prenups: What are they and when should you consider one?
Written and accurate as at: Feb 12, 2025 Current Stats & Facts
Ideally, your life partner ends up being just that — a partner for life. But if things don’t go as planned and your relationship ends, it can help to have a plan for your assets that was drawn up during less stressful times.
A prenup — or financial agreement as it’s known in Australia — is one option for couples looking to protect their assets from divorce and all the uncertainties that come with it. Below, we explore the ins and outs of financial agreements and when they might be appropriate.
What is a financial agreement?
In simple terms, a financial agreement is a written contract you and your spouse sign before, during or after a marriage or de facto relationship. It spells out what will happen to your assets if the relationship breaks down, hopefully helping you to avoid any drawn-out legal disputes.
While many couples bristle at the thought of signing one, it might be worth exploring if you or your partner bring significant wealth (or debt) to the table, own a business, or have children from a previous relationship.
Financial agreements have to be drafted very carefully (ideally by a lawyer who specialises in them), as strict criteria need to be met in order for them to be legally binding. If assets weren’t properly disclosed or the agreement was signed under duress, for example, the agreement could be thrown out.
What happens if I don’t have a financial agreement?
Not all couples who separate or divorce are able to agree on how assets will be divided — sometimes it’s necessary to get the courts involved.
Typically, the court will look at a couple’s assets as well as each person’s contributions (whether financial or non-financial) to the relationship. It will also factor in future requirements, such as earning capacity and caring responsibilities.
Eventually, a judge will decide what an equitable split of assets looks like, but this might be very different from what the parties were picturing or hoping for at the outset.
In contrast, a financial agreement lets a couple decide how their assets will be divided. Ideally, it’s made when emotions aren’t running high and on terms that respect both parties’ interests and expectations.
Tips when creating a financial agreement
Of course, one of the biggest hurdles when crafting a financial agreement is having that initial conversation with your partner. Some people consider prenups unromantic, a sign of distrust, or even a precursor to divorce, and that stigma might be difficult to shake.
When broaching the topic, be mindful of the timing as well as your language and tone. Make sure you can give your partner clear reasons why you want one, whether it’s protecting a particular asset or safeguarding the interests of children you have from another marriage.
Other things to keep in mind include:
- Start the conversation early, as if it takes place with a wedding looming it could call the validity of the agreement into question.
- Take care when disclosing your assets, debts and income sources, as any discrepancies could result in the agreement being ignored in court.
- Review the agreement at regular intervals or after a major change in circumstances (such as the birth of a child or a sudden windfall) and amend or revoke it if necessary.
- At no point should you feel pressured to sign anything, or exert any pressure on your spouse to go through with the agreement.
- Both people should seek out independent legal advice from separate lawyers.
The bottom line
Assuming a financial agreement is legally valid, it can help protect premarital property (assets that were acquired before a relationship), ensure one party isn’t unfairly burdened by the other’s debts, and clarify how future assets will be managed or divided.
Naturally, talk of financial agreements will conjure up thoughts you’d both rather not dwell on (the possibility of your relationship coming to an end), but more important is the sense of security it can provide. Like taking out life insurance, you’re not entering a financial agreement because you anticipate things will go wrong — you’re just making sure a plan is in place on the off chance they do.
