For better or for worse OR until hardship strikes and the pre-nup fails – How to get it right.

Pre-nups are made in the good times, generally to file and forget, with a shared optimism for the future. The danger is, no-one can predict the future with 100% accuracy. Things happen; markets rise and fall, people lose jobs, get sick, have children or a host of other issues, the true impact of which, may not have been properly considered in happier times.

While lawyers try their best to provide for the various ‘vicissitudes of life’ within the Agreement there are no hard and fast guarantees the Agreement will withstand later challenge by the Family Court.

Financial Agreements made before marriage, also known as ‘pre-nups’ are becoming increasingly popular in the modern world of relationships where couples may be older, have unequal shares of assets, a desire to provide for children from previous relationships, expectations of inheritances, or simply a desire to keep them out of court should the relationship later collapse.

There are strict requirements regarding Financial Agreements which, if held to be binding, oust the jurisdiction of the Family Courts to make orders for property adjustment. The Family Law Act 1975 (cth) (‘the Act’) sets out the limited circumstances when a Financial Agreement may be set aside including being obtained by fraud or unconscionable conduct; but also provides an opportunity for termination of the agreement based on financial hardship of one of the parties caring for a child. See also https://www.streeterlawfirm.com.au/why-a-financial-agreement-might-become-void-without-you-knowing/.

The case of Frederick [2019] FamCAFC 87 (28 May 2019) was an appeal to the full Court of the Family Court made by the wife, against Orders initially confirming the validity of a Financial Agreement made between the parties in 2007, during a de facto relationship, prior to their marriage but after the birth of their first child.

Prior to the relationship, Mr Frederick owned an unencumbered property of $2,200,000 and shares in a company owned by him with net real estate valued at close to $2,000,000. The Agreement stated that the wife had made no contribution to those assets of the husband which were listed in the schedule to the Agreement and limited her claim to the increase in their value which was just $100,000 at the time of trial 10 years later.

Things took a turn for the worse when the Fredericks’ eldest child was diagnosed with atypical autism and functional and developmental delays in 2009, two years after the Agreement was signed, and required a high level of care. The Fredericks separated, and Mr Frederick filed an Application seeking a declaration that the Agreement was binding 2017.

Section 90K(1) of the Act provides that a court may make an order setting aside a financial agreement if, and only if,

(d) the court is satisfied that since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside.

The trial judge in Frederick was satisfied that there had been a material change in circumstances, that both parties had caring responsibilities for the child and that “the identified changes have caused and will further cause hardship to both parties, by reason of much more onerous care responsibilities and increased costs”  but concluded that due to lack of evidence as to the current value of the assets of the husband on the Schedule, the court was “unable to undertake any meaningful comparison between the different positions, if the agreement was, or was not, set aside.

At trial, the husband gave only oral evidence as to the current value of the properties, but it was not challenged that the capital increase was just $100,000. On Appeal, the Full Court determined that the husband’s oral evidence could be given some weight and the likely value of the current assets was approximately $4,000,000, thus allowing the comparison and establishing hardship.

The Appeal Court stated at [98]:

98. Taking into account the other findings of the primary judge as to the application of s 90K(1)(d) of the Act, we are satisfied that the wife would suffer hardship if the Agreement is not set aside. The contributions made by her and the considerations mandated by s 75(2) of the Act to the care of X in particular, and the further considerations that flow from that care, cannot, in our view, be adequately satisfied out of the smaller pool, whether it be the greater or lesser value. Thus, hardship has been established.

The Full Court on appeal set the Agreement aside which was wonderful news for Mrs Frederick; not so for Mr Frederick. The Agreement may have stood a chance had they included clauses to provide for hardship, however unforeseen.

Streeterlaw’s Recommendation

Accredited Specialist in Family Law, Simone Green encourages anyone considering a Financial Agreement prior to marriage, or even during a relationship, takes time to carefully consider all of the implications for the party in the weaker position if the relationship breaks down and circumstances change. Call our family law team today on 02 8197 0105 if you require assistance drafting a Financial Agreement or if you want an existing one reviewed!