Recent High Court decision puts spotlight on pre-nuptial agreements

ABC NEWS (Australia)

How legally tight are pre-nuptial agreements?   The High Court recently handed down a decision that focused on a poorly drafted pre-nup.

Transcript

00:00We only know them by their pseudonyms because this is a family law matter.

00:06On one side you had a Mr Daly and on the other side you had his lawyers who were known as

00:11our lawyers and what happened was many many years ago Mr Daly meets the future Mrs Daly

00:18and they decide to get married and at that point Mr Daly asks our lawyers to draft him up

00:25a prenup agreement and Mr and Mrs Daly signed that way back in 2005.

00:32Now this prenup agreement sets out what would happen in the event of a divorce but makes

00:36absolutely no mention of children or what would happen if there were children.

00:42So the couple get married, they have two children, in 2018 they separate and at that point Ms Daly

00:51says wait a minute we've got to put this prenup aside because the Family Law Act makes it

00:55very clear that if there's been a big change in circumstances relating to the care, welfare

01:02and development of a child of the marriage and if the prenup's there and if we were bound

01:08by it it would cause enormous suffering or suffer hardship to the party who was maybe looking

01:14after the kids, we need to put it aside.

01:17Now Lorna when it became very clear that the courts were agreeing with Ms Daly, Mr Daly

01:24turned around and he sued his lawyers who 15 years earlier had drafted this contract

01:31for him saying that they had been incompetent and he was suffering financial loss.

01:36Tell us a bit more then about the 40 lawyers that were surveyed here and what they say about

01:45prenups?

01:46Well, so this guy lost in the High Court basically could only sue for the cost of appealing, fighting

01:55with his wife about whether or not the contract was valid.

02:02He couldn't sue for being in a worse financial position.

02:05So it's really interesting.

02:07It raises all sorts of questions about who asks for these sorts of agreements and who signs

02:12them and there are three different categories according to some research that I've been

02:15looking at.

02:16One, there are people like the Dailies where the bloke who's often older and wealthier

02:22wants his prospective spouse to sign a prenup.

02:26And then you also have the category where affluent families or extended families want the latest

02:32addition to the family to sign up because that way they want to secure intergenerational wealth

02:38within the family.

02:40And then you've got a third category, which is very interesting, which tends to be, the

02:45driving force tends to be adult children from the first marriage.

02:49And they want to make sure that their inheritance is safe rather than it going to the prospective

02:56step-mum or step-dad.

02:57So there are three different categories, really.

02:59And lawyers that were surveyed acknowledge that it is a very complex picture.

03:05Oh, yeah.

03:05Yeah, yeah.

03:05It's really, really complex.

03:07I'll just tell you some of the comments that they made.

03:10When it comes to the richer, usually older male, quote, if I see a young girl who hasn't

03:15had kids yet and there might be discrepancy in their asset base, I won't do them.

03:20And then another one, when it comes to this idea of what happens when you have wealthy

03:24families, quote, it's not usually the lovebirds who decide to have one, it's the others.

03:29It's the parents.

03:30So they're the driving force.

03:31In fact, I think one person used the term puppet masters when it comes to these sorts

03:37of arrangements.

03:37But on the other hand, Lorna, you've got the situation where the pressure comes from the

03:42adult kids.

03:43And quote, there are people for whom agreements are really helpful and suitable.

03:47People on their second marriages who have established assets, established careers, adult

03:51children and no prospect of more children.

03:54And the reason they're suitable is because they give people certainty.

03:57And more importantly, they give the children certainty.

04:00So Lorna, you can see that in some circumstances, it really does make a lot of sense.

04:05And it's not too cutthroat.

04:07Have you been able to gaito, Damien, how often binding financial agreements are poorly drafted?

04:14Well, we don't know the exact figures, but there do seem to be a lot of issues around

04:20poor drafting.

04:20The people I've spoken to say there are a lot of people who dabble in the area.

04:24They don't quite know what they're doing, lawyers who dabble in the area, and maybe

04:28they're not as proficient as they might be.

04:31Because, you know, the problem here, there's massive lead times, right?

04:35So there might be 5, 10, 15 year lead time between drafting the agreement and the cake

04:42exploding in your face.

04:44Certainly, I know that the Legal Practice Liability Committee in Victoria, which is the main insurer

04:50for lawyers and their equivalents around the country, if you go to their websites, there's

04:55a lot of information about binding financial agreements and how to avoid the pitfalls and

05:01what to do if you have complaints.

05:03And apparently, there are a lot of complaints.

05:05So that would suggest, Lorna, that this is a real issue.

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