Binding financial agreements – an overview
A binding financial agreement, sometimes known as a prenuptial agreement, sets out the way some or all of a couple’s assets will be divided in the event that their relationship breaks down. It can also deal with spousal maintenance.
The Family Law Act 1975 (Cth) allows married couples and de facto couples to enter into financial agreements which are legally binding. Although a binding financial agreement can be signed at any point during a relationship, it is preferable that the agreement is put in place before getting married or entering into a de facto relationship (i.e. living together).
Whether you are thinking about getting married or remaining in a de facto relationship for the foreseeable future, establishing the agreement while you are happy in your relationship is far more likely to result in a prenuptial or de facto financial agreement that is fair to both of you, and will ultimately save you time and money.
Protecting your wealth in relationships – reduce the mess of divorce and separation
You’ve worked hard for your money and it’s important that, as you enter a serious relationship, you take steps to protect your assets.
It is important to consider a binding financial agreement when:
- you have more money, property or assets than your partner at the beginning of your relationship
- you may, at a later stage, be entitled to an inheritance or large gift
- you operate a family business or investment that you need to preserve
- you want to ensure the terms of any property division are agreed up front to avoid going to court later
- you are forming a new relationship and you have children who need to be protected financially
In this article, we answer some basic questions about binding financial agreements. Feel free to call our binding financial agreement lawyers with any questions.
When can you sign a binding financial agreement? When can’t you sign a binding financial agreement?
- Binding financial agreements can be signed before during or after a marriage or de facto relationship.
- A binding financial agreement signed without compliance with the rules, will not be valid.
- If there is duress then a BFA will not be valid – this means that one party is under pressure to sign the agreement.
- It is important where BFA’s are signed before marriage or defacto relationships to allow sufficient time for the adequate preparation of the Agreement before signing so as to prevent any
- allegations that the documents was signed under duress or undue influence.
What is involved in preparing a binding financial agreement?
- For a BFA to be binding full disclosure must be made of both parties’ financial assets, liabilities and financial resources (such as money they might receive under an estate, interests in trusts, companies etc).
- You need an experienced lawyer to prepare these documents and both parties MUST get clear and independent legal advice (which means both parties must see different solicitors).
What are the benefits of having a binding financial agreement in place?
- A BFA is beneficial because it sets out clearly two things:
- What the parties both contributed by way of assets and liabilities at the beginning of a relationship; and
- What the parties intend their financial arrangements to be during and (if needed) at the end of the relationship.
- BFA’s are particularly useful when one or both parties have significant assets coming into the relationship which they want to protect from being split or transferred in the event of the end of the relationship (often for the purpose of protecting family businesses or to provide for children to previous relationships).
- They are particularly useful in the early years of a relationship for protecting assets of the parties in the event of a separation.
What are the risks of having a binding financial agreement in place?
- A solicitor will give advice about the risks of financial agreements however these can include if there is a significant change in your financial position (particularly for the worse) you may not be entitled to adequate provision from your partner/spouse in the event of a separation.
- BFA’s can be set aside by the Court for many reasons and this can include:
- One party failing to disclose assets in the document;
- If a party has signed under duress or undue influence or due to fraud;
- If the parties have not followed the agreement in respect of how they intend to run their finances;
- A significantly long marriage;
- Children being born into the relationship which were not considered at the time of the agreement.
- If the agreement does not comply with the rules for drafting BFA’s.
- These agreements are more likely to be set aside the longer the relationship continues and the more intertwined the parties’ finances become, however, they are always useful at setting out the contributions each party made to the relationship and the intention of the parties.
Are there rules about the terms of a binding financial agreement?
- Yes, the BFA can be set aside for many reasons including the following.
- That it was obtained by fraud;
- That a party signed under duress, undue influence, mistake, misrepresentation, unconscionable conduct or the agreement is against public policy;
- Circumstances have arisen since the financial agreement was signed that has made it impracticable for the agreement or a part of the agreement to be carried out.
- Since the making of the financial agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the defacto relationship) and, as a result of the change, a child or carer who is a party to a financial agreement will suffer hardship if the Court does not set the agreement aside.
Should I bother to have one in place or not?
- BFA’s can be a very useful tool in some circumstances, if you are about to enter into or are in a de-facto relationship with someone and you have assets which you wish to protect, you should get independent legal advice about the benefits and risks of entering into a BFA as early as possible in the relationship.
- It is important to consider this and other business structure and estate planning tools regularly throughout your lifetime, particularly where there is a significant change in your life such as a new relationship, separation, significant windfalls or significant changes in your personal circumstances.
This is general guidance only. You must not rely on this when making decisions. You should seek legal advice specific to your circumstances before making any decisions.
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