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Traps with a “Pre-Nup” if you don’t follow the rules

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A recent decision of the Federal Magistrates Court demonstrates the problems caused by signing a Pre-Nuptial Agreement (“Pre-Nup”) on the eve of the wedding, and highlights the requirements of full financial disclosure before the Agreement is signed.

Agreements previously referred to as Pre-Nups are now legally enforceable and are called Binding Financial Agreements.

In a case  known as Blackmore v Webber the husband wanted his fiancé to sign a Binding Financial Agreement only days before the wedding. The husband wanted the Agreement to protect  his real estate, savings, superannuation pension entitlements and other assets from future claims if the marriage broke down.

At the date that she signed the Binding Financial Agreement, the wife was pregnant and living in Australia on a fiancé visa.

The husband was adamant that they would not marry without such an Agreement. The wife made it clear that she did not wish to enter into the Agreement.  The husband said that unless the wife signed the Agreement the marriage was off and  he was not prepared to sponsor the fiancé visa.

Two days later the husband arranged for the wife to see a solicitor and drove her to the appointment so she could get advice about the Agreement. Although the wife saw the solicitor, she initially refused to sign the Agreement. One hour later however she returned to the solicitor and signed the Agreement.

This was only three days before the parties were due to marry and five days before the wife was due to fly to see her family in the Philippines. Also, her  fiancé visa was due to expire in two months.

About three years after the date of the marriage, the husband and the wife separated, and the wife applied to the Court to have the Binding Financial Agreement set aside, and for the Court to determine the division of all property between the husband and the wife.

The Court set the Agreement aside, finding that  the wife had no real choice  but to sign the Agreement, that illegitimate pressure had been put on her and she signed the Agreement under duress. Also, the Court held that the wife was in a position of special disadvantage and  the husband had behaved unconscionably. It was notable that she faced the prospect of having to return to the Philippines unmarried and pregnant.

Apart from using the grounds of duress and unconscionable behavior to set the Agreement aside, the Court found that the Agreement should be set aside because of material non-disclosure by the husband about his financial position.

The schedule of assets attached to the Agreement did not disclose the husband’s savings of about $27,000, the value of two cars that he had or  that there was a mortgage debt of $145,000 over one property he owned. Also, the Agreement did not say how much the husband was receiving under his superannuation pension, or the potential capitalized value of his pension.

This meant that the solicitor who the wife met with could not properly advise her on the effect of the Agreement on her rights or the advantages and disadvantages of making the Agreement.

Although there are some unusual aspects about this case, it does highlight the need to have plenty of time between when a Pre-Nup/Binding Financial Agreement is prepared and the wedding date. A few months at least would usually be advisable, so that each party can make their own completely unpressured decision about whether or not to sign the Agreement.

If there is not much time before the wedding, an Agreement can always be prepared and signed after the wedding. Under the Family Law Act, a Binding Financial Agreement saying how assets are to be divided after separation, can be made before or after the wedding day.

A further risk of rushing the preparation of a Binding Financial Agreement is that all assets in existence at the date of the Agreement may not have been properly disclosed, or one party may say that they did not have a chance to assess the other party’s financial position.

Each party to a Binding Financial Agreement has an obligation of making  full and frank disclosure of all their assets and financial circumstances. As this case shows, even non-disclosure of debts can destroy an Agreement

It is also advisable for each party to the Agreement to independently locate and instruct their own solicitor for advice about the Agreement. The Court in Blackmore v Webber did not find that it was improper for the husband to arrange a solicitor for the wife, but this formed part of the overall assessment of duress and unconscionable behavior by the husband.

We do not know how the parties’ assets in Blackmore v Webber have been divided. After making an order to set aside the Agreement, the Court ordered disclosure of documents, asset valuations, a mediation, and if needed, a final court hearing.

It is always better to have your Agreement prepared properly, and in compliance with disclosure requirements, otherwise you could face substantial costs and uncertainty of court proceedings for property division.

Author: Steven Edward and Emma Bastock