Many people have heard of pre-nuptial property agreements, particularly those with significant assets or from wealthy families who want to protect their property if the relationship breaks down. Property agreements sound simple — seemingly just a straightforward document dividing assets — but under Australian law they are in fact quite complex. Today we take a detailed look at how a property agreement is signed, its legal effect, and who should consider entering into one.

Australia has no concept of ‘pre-marital’ or ‘post-marital’ property

Some may already know that Australia does not recognise what is commonly called pre-marital property. If you didn’t know, now is as good a time as any to find out.

Once two parties enter into a marriage or a de facto relationship, all of their assets are treated as joint property. So how are the assets divided when the relationship ends?

There are two possibilities. One is that all assets, whether acquired before or during the relationship, are thrown into an ‘asset pool’ and divided by the court. The other is that if the parties have entered into a property agreement, the assets can be divided in accordance with that agreement.

As you can see, a property agreement is extremely important for protecting the financial interests of both parties in a relationship. A validly drafted property agreement allows the parties to divide their assets efficiently and in line with their own wishes when the relationship ends, avoiding the uncertainty, lengthy timeframes and significant costs that come with a court-ordered division.

Below we answer some of the most common questions about property agreements.

Property agreements can also be made during or after a relationship

When people hear ‘property agreement’, they instinctively add ‘pre-nuptial’ in front — the classic pre-nuptial agreement. In reality, property agreements can be made not only before a relationship begins but also during the relationship or after it ends. Parties are not limited to agreeing on how assets will be divided before they enter the relationship. During a relationship or after it ends, the parties can, by mutual consent, agree on how to divide their property.

One important point: if a property agreement is made after the relationship has ended, it must be completed within 12 months of the end of the relationship.

Property agreements can cover much more than just ‘assets’

Property agreements can cover a wide range of matters. What exactly can be included is highly complex, and for clients with complicated asset structures, experienced family lawyers need to carry out targeted analysis. In addition to real estate, vehicles and ordinary financial assets, some of the less obvious items that can be included are:

(1) assets inherited from a family trust;

(2) liabilities, such as mortgages;

(3) insurance policies;

(4) shares;

(6) bank accounts;

(5) spousal maintenance;

(6) estates and more.

It is important to note, however, that there is no single definitive checklist of what can be included in a property agreement. Particularly for unusual assets or special circumstances, always obtain legal advice in advance.

After all that negotiating, don’t end up with nothing but a chat…

Can the parties simply agree between themselves and draft a valid property agreement? No. A valid property agreement must strictly comply with the requirements of the Family Law Act. For example, each party must receive independent legal advice on the specific terms of the agreement before signing.

In other words, without solicitors involved, two parties cannot, on their own, execute a legally enforceable property agreement.

Feelings don’t last forever — neither do property agreements

Is a property agreement always binding?

Some may ask whether entering into a pre-nuptial property agreement puts the matter to rest for good. The answer is no. Even where a pre-nuptial property agreement has been entered into, its effect may still be set aside in certain circumstances, including but not limited to:

(1) one party has engaged in ‘fraud’, for example, by failing to disclose significant assets;

(2) the agreement was entered into for the purpose of avoiding creditors;

(3) the agreement is void or unenforceable (for example, it was not properly drafted and does not comply with the statutory requirements in section 90G or 90UJ);

(4) there has been a material change in circumstances since the agreement was made that makes it impossible or impracticable to perform the agreement;

(5) since the agreement was signed there has been a material change in the parties’ relationship (affecting the care, welfare and development of a child) such that one party would suffer hardship if the court did not set the agreement aside;

(6) having regard to all the circumstances, one party’s conduct in entering into the agreement was unconscionable.

Can a property agreement be terminated after it has been made?

Some may want to know whether, having made a property agreement, they can later amend or terminate it if they feel the terms need changing. The answer is yes — but it requires the agreement of both parties. A property agreement cannot be amended or terminated unilaterally. The mechanisms are as follows:

(1) the parties can sign another property agreement, provided the new agreement contains a specific clause stating that the previous agreement has been terminated;

(2) the parties can enter into a termination agreement. As with the original property agreement, in order for the termination agreement to be binding and enforceable it must be signed by each party and each party must have received independent legal advice about the termination.

Who should consider a property agreement?

Some may wonder — given that a property agreement, especially a pre-nuptial one, can affect the relationship — in what circumstances is one actually advisable? If neither party has significant assets, is it really necessary? It must be acknowledged that not every couple needs a property agreement, but the absence of significant assets does not mean a property agreement is unnecessary.

If any of the following applies to you, you should consider entering into a property agreement with your partner:

1. You come from a wealthy family

Even if you personally do not hold significant assets, you should still consider a property agreement. This is primarily to prevent the other party from seeking a share of your family inheritance. A property agreement can include clauses to ensure that inherited assets are not divided if the relationship breaks down.

2. You own real estate

If you own real estate and do not want it divided in the event of a relationship breakdown, the best option is to sign a property agreement.

3. You have children from a previous relationship

If you had children in a previous relationship and are about to enter a new one, a property agreement is worth considering. It can protect the estate of a deceased partner from being divided in favour of the surviving partner, giving you peace of mind that your estate will pass to your children — subject, of course, to any applicable estate law.

4. You are a business owner

As a business owner, you will likely want to protect your business assets, and a property agreement can help achieve this. If you and your spouse separate without any agreement in place, the court may require certain assets and business activities to be frozen so that both parties’ assets and liabilities can be fully accounted for, and the court will exercise its discretion to divide those assets and liabilities in a manner it considers fair. In most cases, a property agreement clearly setting out each party’s assets and liabilities will help avoid time-consuming and costly investigations into either party’s finances and remove the uncertainty surrounding the allocation of personal and business wealth on separation.

5. Your assets far exceed the other party’s

If you are a successful individual about to enter a relationship with someone who has not shared in your journey of building those assets, you may want to protect what you already have. If you and your spouse both agree, you can prepare a property agreement specifically providing that any assets held before the relationship will not be divided if the relationship breaks down.

If any of the above applies to you, it is worth carefully considering a property agreement with your partner to protect your property interests. Talking about money can feel unromantic, but compared with the uncertainty of the future, having the conversation up front is often the better strategy.