What is a prenuptial agreement?
When a relationship of three years or longer breaks down, property is typically divided amongst parties in accordance with the Property Relationships Act (PRA). However, it is possible to opt out of this default position through what is known as a prenuptial, or ‘s 21’ agreement. This essentially allows partners to prescribe their own method of property division which differs from what is outlined in the PRA.
Why a prenuptial agreement?
There are various reasons as to why people make prenuptial agreements.
To protect pre-existing property
Perhaps the most common scenario in which these agreements are made is when a couple with pre-existing property move in together. One can include this pre-existing property in the prenuptial agreement, which then ensures that it will not be subject to division under the PRA; rather it will be divided in accordance with their own prescribed method. This enables one to unequivocally retain their pre-existing property and not risk the other partner taking half of its value.
To reflect any unequal contributions made when purchasing property
Another common situation where people make prenuptial agreements is when purchasing a house.
Often partners make unequal contributions to the house deposit and mortgage repayments. The PRA does not recognise this as it specifies that a ‘family home’ must be equally divided amongst partners, even if one member makes more significant contributions towards it.
When receiving a gift, inheritance or distribution from a trust
The receipt of a gift, inheritance or distribution from a trust is normally regarded as separate property. However, this can become relationship property if it becomes ‘intermingled’ with other relationship property, making it difficult to separate. Therefore, it may be a good idea to protect this type of property through a prenuptial agreement despite it appearing “separate” at first glance.
When is the best time to do a prenuptial agreement?
Although prenuptial agreements can be entered into at any point during a relationship, it is recommended that it is done within the first three years of living together as this is before provisions of the PRA begin to apply. The PRA will provide the less well off spouse with a more attractive property settlement than what would be received through a prenuptial agreement, so they have less incentive to agree to this lesser option. Even in the period before the PRA applies, it is advised that prenuptial agreements are discussed and entered into in the earlier rather than later half of the three year period.
How long does it take to complete one?
The time taken to complete a prenuptial agreement depends on the complexity of the situation and the amount of time needed to negotiate with the other party.
On average it can be expected to take 3-12 weeks for an agreement to be drafted and signed.
What is the cost?
The main cost incurred when creating a prenuptial agreement is legal fees. This cost varies from lawyer to lawyer and depends on the nature of the agreement, however $2,000 – $4,000 is a general price indication.
Situations that are urgent or involve a large amount of assets needing protection, complex finances, trusts and a lot of negotiating with the other party tend to have higher legal costs.
Who pays for a prenuptial agreement?
Often each party will pay for their own legal fees.
However, it is also common for the financially better off party to pay the legal fees for their partner as well. In this situation a lawyer will remain independent and represent their client, even if the other party has paid their fees.
Can we do an agreement after being together for a very long time?
Yes, it is never too late to enter into an agreement. Entering into an agreement after moving in together or getting married, is sometimes referred to as a postnuptial agreement.
However, as previously mentioned, proposing an agreement after being together for a long time may give the financially less well off partner little incentive to sign an agreement which puts them in a situation which is financially worse than what they are entitled to under the PRA. For that reason it may mean that reaching an agreement will be more difficult and sometimes not possible if the other party is not willing to compromise their default position.
Can an agreement be overturned? On what grounds?
There are three main ways a prenuptial agreement can be overturned:
1. Failing to meet the requirements set out in S 21F:
In order for an agreement to be valid it must meet several formal requirements:
- The agreement must be in writing and signed by both parties.
- Each party to the agreement must have independent legal advice before signing the agreement.
- The signature of each party to the agreement must be witnessed by a lawyer.
- The lawyer who witnesses the signature of a party must certify that, before that party signed the agreement, the lawyer explained to that party the effect and implications of the agreement.
If any of these requirements are not met then either party may apply to the Court to have the agreement declared void. For this reason it is essential that both parties receive independent legal advice. However, it is important to note that in some situations where a failure to comply does not not materially prejudice the interests of any party to the agreement then the agreement may remain enforceable.
2. Contractual grounds for declaring agreement void are met
It is also possible that a s 21 agreement meets the formal requirements but gets overturned on other grounds. These other grounds include situations where duress was involved, where one party was unduly influenced to enter the agreement, or if there was a contractual mistake or misrepresentation.
3. Agreement causes serious injustice
The court may also set aside an agreement which has met the requirements, in situations where it would cause serious injustice. This is determined by looking at several factors, namely;
- The provisions of the agreement;
- The length of time since the agreement was made;
- Whether the agreement was unfair or unreasonable in the light of all the circumstances at the time it was made;
- Whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made;
- The fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement;
- Any other matters that the Court considers relevant.
Property Agreements After Separation
How does the process work?
There are two options for settling financial matters with your partner.
1. By agreement
Parties come to an agreement themselves, often with assistance from their lawyers but without involving the Family Court. This process usually takes between 3-6 months. About 90% of our clients settle with their partners by agreement.
2. Family Court
Parties file proceedings with the Family Court. There are several steps in this process in which the parties are encouraged to come to an agreement themselves. If there is no agreement, a defended hearing will take place and the Judge will make a decision. This process takes on average about 12 months. About 10% of our clients settle during the Family Court process, although only 1% will progress to a defended hearing.
We strongly encourage our clients to come to a settlement with their partners by agreement, as it is the most cost effective method and takes the least time.
These processes are mainly used to settle relationship property matters but can also include issues around spousal maintenance (financial support).
Settling through agreement
One of the parties instructs their lawyer to write to the other spouse, notifying that they wish to separate and resolve issues of relationship property. Parties gather financial information.Information can be requested of the other party which must be provided. Valuations may be sought. Experts may be used.
Letter of advice
Both of the parties lawyers will provide a letter of advice to their client, which summarises the facts of their case, the strengths and weaknesses of their claims, the options available and the likely outcomes.
Parties negotiate directly with each other or via their lawyers. Negotiations can be carried out at meetings or via e-mail. Parties may wish to have a mediation, which is a meeting facilitated by a mediator who is skilled in helping people to reach an agreement. Mediators are often independent lawyers and both parties would agree on the person selected. The parties’ lawyers may be present during this mediation if the parties request.
A draft agreement is reached.
Agreement is signed and certified by the party’s lawyers. It is now binding.
Settling through the family court
Parties can choose to go to Family Court if they are unable to reach an agreement in the above steps. Occasionally people prefer to start Family Court proceedings straight away
One of the parties instructs their lawyer to write to the other spouse, notifying that they wish to separate and resolve issues of relationship property. Parties gather financial information. Information can be requested of the other party which must be provided. Valuations may be sought. Experts may be used.
File an application and affidavit
One or more parties file an application to the Family Court to start proceedings. This will include an affidavit of their financial situation. The court processes the documents and serves them on the other party. The court monitors the service.
This is a meeting of around 15 minutes between the parties, their lawyers and a Judge, to narrow down the issues. This meeting may highlight the need for expert witnesses.
The parties and their lawyers continue negotiations.
The parties, their lawyers and a mediator (agreed on by both parties) meet to see if a resolution can be obtained.
The parties and their lawyers meet with a Judge, who will encourage them to come to an agreement.
If the parties do not reach an agreement at the settlement conference, a date is set for a defended hearing. It may be six months before a defended hearing is held. The parties and their lawyers will present arguments to the Court for a Judge to make the final ruling.
If the case is straight forward, the Judge will make a ruling soon after. However if it is a complex case, the Judge may take a further few months to make a decision.