Ask a lawyer, and they will say – it depends.
And because I am not a lawyer, you are probably asking why an accountant is writing about this.
It’s because these deal with financial matters and that means accountants get involved if needed. And often we accountants get told about a divorce before the other spouse even suspects anything.
A prenup is an American term. In Australia, they are more professionally termed ‘financial agreements.
They are usually used by a spouse who wants to protect their wealth.
Prenups have a poor image. Many believe you should never plan to fail; that is what a prenup is – it is a document used when a marriage or union fails. Some say if you love someone, you do not need a prenup.
I disagree.
When business partners get together, I am the first to suggest a shareholder’s agreement, which includes specific clauses for when business partners want to separate. And I rarely come across two business partners who come together because they hate each other. In effect a shareholder’s agreement and a prenup are pretty much the same thing.
When it comes to medical professionals, it is not unusual for one spouse to be high-earning with wealth whilst the other spouse has a typical average Aussie income and assets. We are finding that many of our wealthier clients are asking if a prenup makes sense.
According to the law prenups must be created and signed in the right way. One side (usually the wealthier side) cannot be seen to influence or force the other side. Timing is also important.
The idea is that prenups state what happens financially if two people separate. It should reduce legal costs and delay because things are agreed in writing, so in theory, they are not subject to the regime in the Family Law Act, and this is what makes them appealing for Medical Professionals.
Many people think that prenups cover everything. They don’t. For example, you cannot put children’s care arrangements in a prenup. They only deal with property settlement and maintenance.
Usually, a prenup will:
• State any assets a spouse brings into the relationship.
• That those assets remain their own upon separation.
• Any assets accumulated in joint names during the relationship will be divided equally.
• Have a date or event when the agreement terminates.
• Determine how assets obtained via inheritance are dealt with.
• If there is a wealthier spouse, there may also be maintenance provisions
As stated above under law, Prenups are taken quite seriously so if you are going to have one you need to make sure they have been prepared and processed correctly otherwise, the prenup can be ‘cancelled’ leaving both sides to the mercy of the courts.
Prenups can be set aside if:
1. The wealthier spouse does not give the other spouse enough time to consider/ review/ make proposed changes.
Each side must have their own legal representation and should be able to negotiate freely. If you do this six months before the grand wedding date, you should be fine. Do it two days before the wedding date, and you may have a problem.
2. One side has not been honest or not declared everything or provided inaccurate value of assets.
3. Any evidence that shows one side was not willing to negotiate or pressurizes the other side to sign.
But don’t assume what you have agreed to will always work. You may have an agreement that says you are entitled to have something, but it does not mean you will get it.
That is because emotion is involved. Recently, I had a case where, on separation, both sides agreed they could remain in the home for up to 12 months after the date of separation, and that is what one side wanted to do. That lasted about three weeks because the environment became so toxic that they could not be under the same roof.
And joint assets are not easy to separate either. If you both want to sell the investment, it is easy – you sell it and split the proceeds. But what if one wants to keep the property?
And there is one thing that I have noticed in every single separation and divorce I have been involved in. Both sides will physically steal personal items from each other. Each side will deny it, but it always happens. No matter how good your prenup is, it is going to be useless in such cases.
And do not assume having a prenup keeps you away from lawyers and their fees when one separates or divorces. That is the hope, but I find when people separate emotion gets the better of them and they suddenly change from being decent people to, well, nasty people.
So, if there are so many issues with prenups is it worth having one?
I think, like the lawyers say, it depends. But I think they can be used to save time, money and stress on separation. And that is usually the case, but it won’t all go to plan so do not assume it will.
In other words, ask yourself this. Do you want a massive amount of stress on separation or a big amount of stress on separation? Because that is really the difference.
