Prenuptial Agreement – a contract to exchange property assets in the event of a divorce 

Yukio Hayashi    25 May 2018

Q: There is an upcoming marriage between Australians who have an age gap of 10 years. The man has economic power, a house and some assets. As a condition of marriage, he said, “I want you to sign a contract which pre-determines the distribution of assets in the event of a divorce”. When he divorced his ex-wife, he stated he did not want to go through it again as it was not a pleasant experience.  What is this document and what is its effect?

A: It is a Financial Agreement and is more commonly known as a Prenuptial Agreement under the Family Law Act as per Part VIIIA. The main purpose of the agreement is to identify how the couple will distribute their assets should they divorce. For example, if at the time of marriage, one party has a pre-existing home or an expensive piece of artwork that may have been inherited from a parent, the prenuptial agreement will state “the house or art is not marital property at the time of the divorce and is to be excluded from distribution”. The Financial Agreement not only determines the distribution of assets but also covers child support fees and alimony. However, child support is a child’s right and there is a very likely chance that a dispute will arise in relation to its validity  and is generally not covered by the Financial Agreement. A Financial Agreement can be entered into not only before marriage but also during the marriage and after divorce.

Ideally, entering into a Financial Agreement will make the divorce process smoother (without having to waste unnecessary legal costs or effort).

However, one thing that should be noted is that even if the Financial Agreement was considered a fair arrangement at the time, it may be considered unfair in the future. For example, 10 years later after a child is born, if an individual had been a housewife for a long period and cannot obtain a stable job, can it be considered acceptable then? In this regard, the Family Law Act has several conditions that can revoke the Financial Agreement, including situations whereby the effects of the Financial Agreement are considered unfair.

To ensure the validity of the Financial Agreement, information will need to be disclosed which may be considered important, including the details of the assets and a certificate from each respective lawyer that shows advise has been provided to you in relation to the pros and cons of the Financial Agreement and the benefits and the rights of the parties(Section 90G(1)(b) of the Act).

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Yukio Hayashi

Yukio Hayashi

Senior Partner

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Death of K-pop star, Goo Hara, reminds us the importance of having a valid Will

Anyone who is familiar with K-Pop news would have heard about the death of K-Pop singer Goo Hara, former member of Korean girl group Kara. Following her death, the sad childhood of the singer came into light due to a legal claim brought forward by the singer’s mother under the Korean Inheritance law. It was reported that Goo Hara’s mum abandoned her and her older brother when Goo Hara was only eight years old and never cared for them or contacted them since the abandonment.  It was reported that Goo Hara’s mother subsequently gave up her legal parental and custodial rights in relation to Goo Hara and her brother in 2006. Young Goo Hara was subsequently cared for by her older brother and her grandparents while her father was mostly away to work on construction sites in order to support the children financially. Goo Hara was 28 when she died and having never been married, she did not have any surviving spouse or any children. Under the Korean Inheritance Law, if you die without a valid will then the estate of the deceased will be distributed in the following order: Children (or grandchildren) Parents (or grandparents) Siblings Relative within the four degree of collateral consanguinity And if there is more than one person standing in the same rank then they share the estate equally. Since the death of Goo Hara, Goo Hara’s father has given his share of Goo Hara’s estate to Goo Hara’s brother stating that he always felt guilty not being there for the children to support them emotionally as he was away from home working to support the family financially and the children had to rely on each other during his absence. Currently, the singer’s mother has appointed a lawyer and filed a legal proceeding to claim her half share of the singer’s estate as the mother of the singer under the Korean Inheritance Law. The singer’s brother stated he is upset that the person who caused so much pain in his sister’s life now stands to benefit from her death and he vowed to defend his sister’s estate. You may think there is injustice being served here if the Korean legal system grants Goo Kara’s mother a share of the singer’s estate. But as the Korean Inheritance Law currently stands, unless there is a different way of defining a ‘mother‘ under the Korean Inheritance Law to exclude a mother who may have been absent from fulfilling a mother’s role during the deceased’s life, the Court must grant the mother the one half share of the singer’s estate. Similarly in NSW, when a person dies without a valid will in place, Succession Act 2006 (NSW) will determine how the deceased’s estate will be distributed. In NSW, distribution of the estate will generally go first to the surviving spouse, and if there is no surviving spouse then in the following order: Children Parents Brothers and sisters Grandparents Aunts and uncles Cousins The law does not take into account the type of relationship you had with your family members when distributing your estate after you die. The only thing the Court will consider is how you are legally related to the deceased. There are many similar cases in NSW. Recently there was a case in which a father, who was abusive and had a history of domestic violence, was issued with Apprehensive Violence Order (AVO) to prevent him from approaching the son in order to ensure the child’s safety. Soon after the Court’s AVO order, when the child was still very young, the mother divorced the child’s father and moved to Sydney. The child grew up and by the time the child reached his late twenties, having worked hard, he had accumulated wealth of his own. He maintained a close relationship with his mother, but did not have any form of relationship with his father. His father never contacted the family, and they lived separate lives. Later the child, still in his twenties, died suddenly from an accident. At the time of his death he was not married and did not have any children. The child, who was still young, never thought about having his estate planning in place and consequently did not have a valid will at the time of his death. The mother, in order to finalise her son’s estate, filed documents to the Court to be the administrator and the sole beneficiary of her son’s estate. The Court informed the mother that when a person dies without a will then law determines as to who the beneficiaries of the estate are. And in accordance with the Succession Act 2006 (NSW), as the deceased is not survived by a spouse or children, next in line to receive the deceased estate were the parents of the deceased. Therefore, both the father and the mother had to share equally in the late son’s estate. The mother was devastated by the fact that the father who was abusive to her son, who took no part in raising him and lived his life as a stranger to her son during her son’s life now stood to benefit from her son’s death. However, the law is clear on this matter. The distribution of the estate of an intestate must be in accordance with the law, and the law states that when a person dies and is not survived by any spouse or children then it is the parents of the deceased who are next in line to share in the estate of the deceased. The law does not look into the kind of relationship the parents had with the child. The fact that one is the parent of the child is the only qualification that is needed under the Succession Act. Every family has a different story and different relationship that is unique for that family. However, the law does not take any of these factors into account when it comes to distributing the estate of a deceased person who died without a valid will. The only way you can have certainty and control over what happens after you die is through having a valid will in place. Many will agree and recognise the importance of having a valid will in place, but for most this is easily pushed down to the bottom of their ‘to do’ list. However, as we currently experience a period of uncertainty and have more time to spend at home during this Coronavirus pandemic, maybe it is time to give some thought to estate planning to preclude some uncertainty and heartache for your family.  

Separation - Division of matrimonial property and inheritance

Q: I have been living in Australia for almost 20 years. I have been married to my husband for five years but have hardly any contact with him. I had considered starting procedures for divorce and marriage property distribution because our relationship had collapsed. However, I was recently informed that he was given six months to live due to final stage lung cancer. He has never written a will that would leave an inheritance to me. What would be my rights to the marriage property if he dies? And do I have any right to receive inheritance? A: Divorce and distribution of marital property in Australia are subject to the Family Law Act. If a marriage property proceeding has commenced pursuant to section 79(8) of the Act, even if one of them dies in the middle, it shall be continued by the executor or the estate administrator as the agent of the deceased. Importantly, the lawsuit must be initiated while the spouse is alive. If the proceeding has not begun before your husband dies, your right to claim for sharing marital property has expired. Therefore, if you choose the marriage property distribution method, you need to start legal action immediately. If your marriage distribution proceeding cannot begin before your husband dies, your rights will become the right as an inheritance. In this regard, if your husband wrote a will that would leave you with no property or only an inadequate inheritance, you would still be granted a family provision (similar to a Japanese claim for retention). The amount of inheritance under family provision is at the discretion of the court in light of your situation and other factors. The most important factor is whether you are dependent on your husband or have relied on him. On the other hand, in the case of seeking marriage property distribution, the family court is mainly concerned with the situation during the past marriage period. For example, the court takes into account how much each couple has contributed to decide the marriage property to be distributed. The contributions of a full-time housewife, such as childcare and housework, is of course an important factor to be considered.

Divorce - Who is entitled to keep the family pet?

Q: I have been divorced with my husband without any children, but I have a family dog. This dog is like a child to my husband and me, and we are disputing ownership of the dog. How does the law treat pets in a divorce? A: In recent years, many pets (especially dogs and cats) have lived as members of a family, and there have been cases before the courts as to who would own the pet in a divorce. The Australian Family Law Act 1975 (Cth) (Act) has no direct reference to pets owned by couples in divorce proceedings. However, in previous cases before the Family Court, it was decided that pets are personal properties. Based on this, the Family Court, pursuant to section 79 of the Act, considers pets as part of the property of a divorced party and will issue an order as to who owns it. While pets have generally no financial value, there are cases in which pets have a monetary value due to unique pedigree. If there is a dispute between the parties over the ownership of the pet, the Family Court will, as with any property, take into account each party's case and make its determination. The following situations are advantageous for claiming that you own the pet: You are registered as the owner of the pet in the local council; A microchip was embedded in the pet, containing your information; There are receipts to prove that you are always bringing your pet to the vet; You regularly bring your pet to a training school; You live in a house that has enough space for pets (especially for large dogs, it is important to live in a house with a large garden); Your pet recognises you as the best owner, often by feeding or taking walks. In any case, pet ownership should also be determined through mediation or negotiations, rather than a court proceeding. Just like the case of a child custody dispute, what is important is what makes the pet happy.

Post Separation Inheritances

Can an ex-spouse claim against an inheritance received by the other spouse after separation?   Naturally, you may think that an inheritance received after separation should be excluded from the rest of the parties’ pooled assets. However, the Court has to consider all of the parties’ assets which were acquired before the commencement of the relationship, during the relationship and after separation as well as the parties’ contributions (both financial and non-financial). Having considered all of the assets and the contributions, the Court has the discretion to do one of the following: Treat certain assets received after separation differently in the above determination; or Include assets acquired after separation in the asset pool for division between the parties. These issues were recently considered by the High Court and the Full Court of the Family Court of Australia.   Singerson & Joans [2015] The Husband inherited about $3,000,000.00 shortly after separation. The wife made significantly more financial and non-financial contributions as a homemaker, child-carer and breadwinner. The Family Court noted that not only the 4 years of contributions between separation and trial but also across the entire 15-year relationship should be considered. It also acknowledged the initial contributions made by the husband and his post-separation inheritance. The Court determined that the wife is entitled to 47.5% of all the property including the inheritance. The High Court declined to provide guidelines for Family Law Courts in respect of post-separation “windfalls” and supported that family court judges’ discretion be exercised in every individual set of circumstances.   Holland & Holland [2017] This case involved a 17-year marriage with two teenage children. The parties separated in 2007 and were divorced in 2012. Three and a half years after separation, the husband received an inheritance from his deceased brother worth approximately $715,000.00. The inheritance was excluded from the asset pool available for division and was regarded as a “financial resource”. On appeal, the Full Court of the Family Court of Australia held that as a matter of principle, an asset should not be excluded from being considered altogether in the overall property settlement. However, the Court stated that it may, in some cases, be appropriate to treat certain assets separately depending on the parties’ differing interests to such assets or the degree of contributions made by the parties to such assets.   Calvin v McTier [2017] This case involved an eight-year marriage with one child. Four years after separation, the Husband received an inheritance of $430,000 from his late father. The inheritance was equated to about 32% of the total asset pool which was about $1,340,000. The Husband argued that the inheritance should be excluded from the asset pool available for division as it has no connection to the parties’ marriage. However, the Court held that the inheritance be included and that the Husband made substantial financial contribution after separation because of the inheritance which was assessed to be 75% and the Wife’s as being 25%. The Court then made an adjustment of 10% in favour of the Wife, taking into account the disparity of the parties’ income earning capacities. The final division was 65% to the Husband and 35% to the Wife.   The above cases demonstrate that all of the parties’ assets must be identified before the Court can make orders for property settlement and that the Court retains discretion as to how each asset is to be treated in each case. If assets are received after separation, the Court has the discretion to place them separately from the rest of the asset pool depending on the facts of each individual case.

Property Settlement - Loan or Gift from Parents

When buying a home after marriage, there are many cases in which the purchase is made with the support of parents. If the marriage breaks down in such a situation, how does the court treat the funds received from the parents in the distribution of property? If there is any evidence such as a loan agreement that states that a fund is required to be repaid under certain conditions, a security deed or a record of a discussion between the parties that identifies the loan, the fund received from the parent is considered as a loan. If the money received is a gift from the parent, there is no obligation to repay it, and therefore, it is very likely that the money given to a couple in the long-term marriage will be regarded as a part of the common property. Considering whether the parent's funding was a loan or a gift, when calculating the total value of the parties' shared assets and determining their respective share, the court takes into account various factors stipulated in the Family Law Act.  In many cases, it is not clear whether the parent's funding was a loan or a gift, and it often gives rise to a major problem during a divorce proceeding. For example, if a couple purchased a house for $800,000 with $400,000 in funding paid by their parents and has already paid out the loan, whether $400,000 was a loan or a gift is an important point in determining the total amount of common property. This becomes a more important issue if the amount of funding received by their parents accounts for a larger proportion in the total value. Accordingly, when considering funding a child, it is necessary to hire a lawyer in advance and to make the intent of the funding clear. Otherwise, the parents may be called upon their child’s divorce proceeding as a witness or required to submit an affidavit, which causes severe stress over a long period of time. Further, such proceedings will give rise to significant legal costs. In order not to spend too much money on legal fees during a divorce proceeding, it is recommended that parties start appropriate negotiations at an early stage for the settlement, so that things do not progress to the court due to property distribution issues.

Valuation of Assets - Property Settlement

Under family law, an initial step for parties in a divorce or separation who are seeking a distribution of matrimonial property must clarify the assets owned by the parties and obtain a valuation of each asset. In the event that the parties cannot come to a mutual agreement on the division of property, a party may apply to the court for a decision. In such a case, the court will base its decision on the value of the asset at the time of the trial rather than the value at the time of separation. This is because a considerable number of years may have passed from the date on which the separation began to the date of the trial, and a decision made based on the value of the asset at the time of separation may not be a valid (or fair) decision. There are many cases in which one party continues to live in a house that is a shared property even after separation and either one continues to pay the loan. The value of real estate is usually on an upward trend, and the amount of net assets will increase according to the repayment of the loan. The court will issue a judgment taking into consideration what each party contributed to improve the value, such as maintenance of the marriage property, renovation, etc. after the separation. In this regard, in order to obtain a judgment that properly reflects each party’s contribution in the final judgment of property distribution, a party who continues to pay the loan after separation and strives to improve the value of the property should clearly record the details of his/her contribution which can be submitted as evidence at trial. Also, if one party contributes to the improvement of the value of matrimonial property after separation, he/she should also obtain an historical valuation so that the court can take into consideration the degree and importance of such a contribution.