Part Two: The Prenup
WHEN COUPLES SPLIT, their accumulated assets need to be divided. So, who gets to keep what in the art collection? And is a prenup a good idea?
Whether a couple negotiates an asset split through a court before a judge, or via lawyers outside court, all deliberations are based on the presumption that in all areas of a relationship, the couple made contributions and had responsibilities within the partnership. However, as associate solicitor at Justice Family Lawyers Nectaria Grivas notes, that contribution is taken on a case by case basis by the courts.
Prenups are widely used these days in Australia to inform asset split deliberations. A prenup – or prenuptial agreement – is a legally binding financial contract between two people planning to get married, though a similar agreement can be prepared if two people are planning to live together in a de facto relationship. They can be entered into at any stage of a marriage or relationship, and even after it has ended.
“Prenups can do a number of different things,” explains family law specialist Max Meyer. “You could get a prenup and put a ring fence around an existing art collection and say whatever happens, no matter how long we’re together, I’m going to keep this collection.” More commonly, many people get together when they’re young, and the thought of a prenup seems presumptuous. Yet even here they have their use. “Say you’re 25 and all you’ve got is a couple of framed prints, but you’ve got a degree in Fine Arts from the Sorbonne. You might say, ‘sweetheart, I’m going to spend a lot of my time collecting up-and-coming young artists and I want you to agree with me that we can deal with those in a particular way’. I think it’d be pretty harsh to say to your partner that they’re not going to get any of that, but you could say if we use joint funds I’ll get two thirds of the value of it if we split, because I’ll use my extra skills as well.”
Prenups are only limited by what someone proposes and what a couple agrees to. “There’s a lot of chatter out there that prenups aren’t worth anything, but that’s absolute rubbish,” says Meyer. “They are, and the courts have said that while outcomes might be unfair, prenups [should be] fair in process: there is no deceit, undue pressure and there’s full financial disclosure between the couple. Provided those things are met, you can have a fairly high level of security from a prenup.”
How do the practicalities of the prenup in relation to an art collection actually play out? Family law specialist Max Meyer suggests that if the collection is fixed, allocating each work to each spouse is the easiest way to go. If you’re planning to add to the collection, you could include a clause that the spouses agree at the time of acquisition of new work who will own it and record that agreement. “Nice idea, but people are usually too slack to do it,” comments Meyer.
Another option is to split by value – but this leaves the question of when the value is determined. “But it is doable,” says Meyer. “The downside is the cost of valuing, so I’d include a clause that value be as agreed.”
Then there’s the pick-a-pile method, which Meyer describes as “usually good, and the only contribution family lawyers have made to modern life”. Pick-a-pile sees one spouse draw a complete inventory, then divide it into two lists. The other spouse can then choose the list he or she wants,
The theory here is that it’s in the interests of the list maker to make two fair lists knowing that the other party has the power of final choice. “I’m not sure if this will work with art in some cases, where each party may know what the other really values and foist upon the other some bad choices,” notes Meyer.
Another option, according to associate solicitor at Justice Family Lawyers Nectaria Grivas, is an Application for Consent Orders. This would only be drawn up if the relationship had already broken down. It requires Court approval, but the parties do not need to physically attend Court. Grivas says the latter option offers more protection: “Contributions are often not equal, and this kind of agreement will (among other things) determine the appropriate property split.”
What if you and your partner intend to donate the collection? Grivas says that while all intentions should be included, “the problem with prenups is that they are easily open to Court scrutiny, intervention and change”. Meyer agrees: “In my opinion any mere expression of intention to donate is not going to be binding or enforceable. I think you may have to accept that, while the expressed wish may have moral force, it won’t have any legal effect.”
This article was originally published in Art Collector issue 90, OCT – DEC 2019.