Binding Financial Agreements: Protect Your Assets and The Future

Binding Financial Agreements

These agreements can be executed prior to or during the marriage or de facto relationship or after the marriage or de facto relationship ends. They outline and address the financial and property divisions without going to court.

Purpose of binding financial agreement:

The versatility of Binding Financial Agreements (BFAs) makes them helpful in detailing the financial obligations between the parties so that they can decide on various financial matters, including:

1. The division of property and assets acquired before entering the marriage or de facto relationship upon separation
2. The determination of spousal maintenance to be provided after the separation
3. The approach to handling liabilities incurred individually or together in the future
4. The division of an individual’s salary or wages throughout the relationship
5. The management of pre-existing debts.

 

Types of binding financial agreements 

There are three types of binding financial agreements depending on the stage of the relationship:

1. Prenuptial agreement
2. Cohabitation agreement
3. Postnuptial agreement

Prenuptial Agreement:

This binding financial agreement is outlined and signed before the marriage.  It protects assets, provides mental peace, and offers tax benefits to people with significant pre-existing assets, inheritances, or children from previous relationships. It also saves parties from lengthy court proceedings.

Cohabitation Agreement:

A Cohabitation Agreement is a binding financial agreement for an unmarried, romantically involved couple who plan to live together. It outlines the rights and obligations of each partner and details how the couple’s property should be divided if they decide to part ways. This document is suitable for you and your partner if you both are

1. In a de facto relationship 
2. Not legally married to one another 
3. Not related by blood 
4. Already cohabiting or intending to share a residence

Postnup Agreement:

A postnuptial or post-marital agreement or postnup is a contract between spouses after marriage. It outlines the division of financial assets and responsibilities in case of divorce. It covers scenarios like the distribution of marital property upon one spouse’s death, terms for separation, and issues regarding alimony. However, it cannot address child custody or support as it is always decided in the best interest of the children at the time of separation.

How to make a financial agreement legally binding?

A Binding Financial Agreement (BFA) is a legally binding document. All involved parties are obliged to comply with the terms and conditions of the agreement. 

For a BFA to be considered legally valid and binding, it is essential that 

1. all parties willingly engage in the agreement
2. have a comprehensive understanding of its consequences
3. have received advice from independent legal counsel. 

Independent Legal counsel must ensure that all parties are fully informed of their rights and responsibilities. Moreover, it helps to prevent undue influence or coercion. 

Can a binding financial agreement be overturned?

While Binding Financial Agreements (BFAs) offer a legally enforceable contract for financial dealings, they can be challenged. Under specific conditions, a court may decide to overturn a Binding Financial Agreement. Such conditions include instances where it can be clearly shown: 

1. Fraud or Misrepresentation:This includes scenarios where one party has been dishonest or provided misleading information in the formulation of the agreement.
2. Undue Influence or Duress:It means that one party was compelled or pressured into agreeing without voluntarily consenting to the agreement.
3. Unconscionable Conduct:This is when the terms in the agreement are significantly in the favour of one party, rendering it unjust.
4. Material Change in Circumstances: 

          This applies if there has been a significant change in the conditions of the agreement.

Consider, for instance, Thorne v Kennedy. Kennedy possessed assets worth around $18 million, while Ms. Thorne had negligible financial resources and no children. Ms. Thorne had moved to Australia from abroad, intending to marry Mr. Kennedy. Just 11 days before their wedding, Mr. Kennedy took Ms. Thorne to a lawyer’s office to sign a Binding Financial Agreement. He told her she should sign the agreement; otherwise, he would call the marriage off.

Prior to signing, Thorne was advised to get legal advice independently. She was informed that the agreement was heavily biased in favor of Mr. Kennedy and offered her no benefits in case of a divorce.

Despite the advice, Thorne signed the Agreement four days before their wedding, and they got married as planned. The High Court of Australia later annulled the prenuptial agreement for several reasons. This includes:

• Whether each party is given the right to negotiations
• What is the emotional state of each party, and is there any overt or covert pressure to conclude the relationship?
• Whether each party is given right to reflect upon the consequences of the BFA
• What’s the financial position of each party, and whether they have received individual advice?
  

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What do BFAs Cover?

Under Section 90D of the Family Law Act, a binding financial agreement covers property division. This includes division of assets, real estate, vehicles and investments. Apart from that it covers debts and liabilities, superannuation funds division and spousal maintenance.

Family Lawyer Role in Binding Financial Agreements:

You are required to get independent legal advice from an expert family lawyer to:

• Ensure Complete Transparency: 

It is important to ensure that all the parties involved share their financial details to make an accurate contract. 

• Seek Independent Legal Counsel: 

All the parties need to seek independent legal advice to completely grasp the implications and consequences of the contract.

• Facilitate Negotiations and Mediation: 

Lawyers will negotiate to achieve an equitable and balanced deal that satisfies the requirements of everyone involved.

• Understand Enforceability: 

Your lawyer will know how enforceable the contract is by identifying possible loopholes.

Why a Binding Financial Agreement is important?

1. Safe Financial Planning: BFAs provide a clear financial blueprint that minimizes ambiguities and possible disputes if a relationship ends.
2. Asset Safety: The agreement ensures that personal assets are protected and equitably distributed based on the mutually agreed terms.
3. Personalized Agreement: The parties can customize the agreement to suit their unique financial situations.
4. Efficiency and Economic Benefits: Establishing an agreement in advance can lead to significant savings in terms of both time and legal expenses for both parties in the future.

Do BFAs have any disadvantages?

Overall, the benefits of BFAs outweigh the disadvantages. However, considering the nature of the agreement, sometimes, complexity arises, often necessitating the input of legal professionals. Additionally, BFAs might not offer the necessary adaptability to accommodate future situations like income variations, employment changes, or alterations in family structure.

How can a BFA be terminated?

• Mutual Decision: 

Should both parties decide to end the agreement, they can mutually execute a new agreement to supplant the current one.

• Consent Order: 

Parties have the option to seek a court’s decision to nullify the agreement if there are legitimate grounds for it

• Termination Clause: 

The agreement might specify an expiry date or conditions specifying the circumstances under which the agreement will terminate.

In conclusion, where Binding Financial Agreements (BFAs) can serve as an efficient method for safeguarding the assets of an individual, it is important to ensure that it is just and balanced to prevent future disputes.

For this purpose, we advise our clients that such agreements must be formulated by a family lawyer This approach significantly reduces the likelihood of the agreement being contested and potentially invalidated by a court.

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FAQs

How much does a binding financial agreement cost?

Lawyers typically charge clients between $3000 and $5000 to prepare a Binding Financial Agreement (BFA).

Are binding financial agreements enforceable?

To ensure a BFA is legal and enforceable, it must adhere to the rigorous requirements outlined in the Family Law Act. This mandates that each party willingly agrees to the BFA and is fully informed. For a BFA to be recognized as valid, there’s a prerequisite that all involved parties sign, acknowledging they have received independent legal advice.

How to get a legally binding financial agreement?

The fundamental components that must be present for the agreement to be considered a legally binding contract include 

1. mutual agreement, demonstrated through a valid offer and acceptance 
2. sufficient consideration
3. the legal capacity of the parties
4. the legality of the agreement’s terms

How to write a binding financial agreement?

To write a BFA, please consult a family lawyer. You can not write it yourself because it would not be legally binding or enforceable.

Does a binding financial agreement need to go to court?

Binding Financial Agreement (BFA), doesn’t usually require court’s approval to be valid as long as legal standards are met and both parties agree. However, any party violates it, court intervention may become necessary to resolve disputes.