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Binding Financial Agreement
People execute a Binding Financial Agreement because they want certainty as to the division of your property if the relationship falls over.
In essence, such an agreement when properly drafted will protect or quarantine the assets that you bring into the relationship and possibly future assets that you may acquire through things like an inheritance, etc.
Importantly, a Binding Financial Agreement is a contract that is not bound by the Family Law Act provided the agreement is not set aside.
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The Basics of Binding Financial Agreements
You may have heard of the term, “prenup,” which in essence is a binding financial agreement. The objective of a binding financial agreement is to set out in a clear and understandable manner how assets will be divided if the relationship at some point in the future breaks down. A binding financial agreement can also be used to deal with spousal maintenance, again if the relationship does not survive.
Whilst a binding financial agreement is not a great topic for a couple planning their wedding, the fact is that increasingly they’re being used to protect or quarantine assets in the event that things happen and the marriage fails, as they do approximately 40% of the time.
Who Considers Getting a Binding Financial Agreement?
Those who consider a binding financial agreement are typically those who marry later in life and have over the years accumulated significant assets over their life, thus far. They come to the relationship with a strong degree of pragmatism and want to ensure that if things go south and the relationship falls over, that they’re not financially disadvantaged to the extent that they would be if they didn’t have a binding financial agreement.
Alternatively, the other cohort of people who consider a binding financial agreement are those who are beneficiaries of substantial assets through a Will and they or their family do not want to expose those assets unnecessarily should the relationship break-down.
People who consider a binding financial agreement typically consider one for these reasons:
- one person has more assets than the other at the start of the relationship
- one person may be at some future point entitled to an inheritance or substantial gift
- one person runs or owns a family business that needs to quarantined
- the couple both want to have terms that set out how property will be divided if the relationship breaks down
- there are children involved in the new relationship that requires their financial positions to be protected.
Are Binding Financial Agreements Common?
A study by ME quizzed over 1000 people in Australia who were in a relationship and identified that 74% considered prenups (binding financial agreement) smart, despite only 18% actually have one in place.
Canstar similarly conducted research and found that 6% of married couples had a binding financial agreement.
Upon reflecting on the results of their study, Canstar’s finance expert, Steve Mickenbecker recommended that Australians considering tying the knot where there are significant assets at play should be considering one.
“We can see that people are marrying later in life, meaning they have more assets that could need protecting if the relationship breaks down,” he said. But he added that “it’s worth considering that a prenuptial agreement may not necessarily produce a better outcome than a divorce settlement.”
How Does a Binding Financial Agreement Work?
The Family Law Act 1975 (Cth) sets out the requirements of binding financial agreements. The legislation allows for such an agreement to be entered into at any point in time during the relationship, but it is recommended that this is done prior to marriage, or in the case of a de facto relationship, before living together.
If a binding financial agreement is carried out in circumstances where the relationship is on the rocks, the agreement may not be fair, or worse may be done by coercion which would bring the validity of the binding financial agreement into dispute.
Relevant Case Law You Should Know About
The High Court decision of Thorne & Kennedy iterated the importance that binding financial agreements should not be carried out in any circumstance that suggests that one person to the agreement has been coerced or pressured into the agreement.
The Hight Court decision essentially expressed the importance that in executing a binding financial agreement, the proximity to the wedding date is an important consideration in testing the validity of the agreement. In other words, springing a binding financial agreement on the other person days before the marriage could suggest that the person was forced to sign the agreement.
How Do I Get a Binding Financial Agreement?
There are numerous requirements that dictate how to get a binding financial agreement. More specifically:
- The binding financial agreement has to be in writing and signed by both people; and
- The binding financial agreement also includes a statement from each person stating that they both individually received independent legal advice to the agreement, before they signed it and were aware of the advantages and disadvantages of signing the binding financial agreement
- Before or after signing the binding financial agreement, each person was given a signed statement by a legal practitioner certifying that they received the above advice
- The copy of the statement by the lawyer was given to each person
Can I Terminate a Binding Financial Agreement at any time in the Future?
A binding financial agreement can be terminated if the couple included a provision that allowed the termination of the former agreement in a subsequent agreement.
Alternately, a binding financial agreement may be terminated by the couple entering into a separate ‘termination agreement’. Though, this agreement has the same legal requirements as the former binding financial agreement, including that each person must receive independent legal advice about both the effects of termination, advantages and disadvantages.
The relevant provision of the Act is s 90J (titled ‘termination of financial agreement’):
(1) The parties to a financial agreement may terminate the agreement only by:
(a) including a provision to that effect in another financial agreement as mentioned in subsection 90B(4), 90C(4) or 90D(4); or
(b) making a written agreement (a termination agreement ) to that effect.
Can You Draft Your Own Binding Financial Agreement?
You should not draft your own binding financial agreement. What you should do is contact us at Harry Quinn so we can consider your full circumstances and ensure that both the drafting and execution of the binding financial agreement are done in full accordance of the relevant legislation.
The last thing you want is a binding financial agreement that has no validity in the event that your relationship breaks down.
How Much Does a Binding Financial Agreement Cost?
The cost of a binding financial agreement can vary with complexity. However, ballpark figures are between $2,000 – $5,000.
How Should You Raise a Discussion about a Binding Financial Agreement?
We all take insurance policies out in the event of the worst-case scenario occurring. Similarly, binding financial agreements are an insurance policy to protect assets in the event of the unfortunate break down of your relationship.
A properly drafted binding financial agreement should give you and your future partner certainty and clarity about the division of property if the relationship did fail. This acceptance of course also brings a degree of peace knowing that if you separate you’re not going to be caught in a protracted legal dispute that takes years and potentially hundreds of thousands of dollars to sort out.
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