A Binding Financial Agreement is a private agreement that can be entered into by people before a de facto relationship or marriage commences, who are in a de facto relationship or marriage or after their relationship ends. It allows the parties to decide at the outset what will happen to their property if the relationship breaks down.
If you have a Binding Financial Agreement, and you separate, the terms of the agreement apply. The alternative being, to try to negotiate a property settlement after an often emotionally charged separation or to have the Court decide how property is to be divided up.
These kinds of agreements can be very attractive to people who don’t want to spend time and money arguing about who gets what in the case of a split.
They’re often colloquially known as ‘pre-nups’, short for ‘pre-nuptial agreement’. This is because they are commonly used where two people intend to get married but want to have some certainty about their financial future before tying the knot.
Why is it useful?
A financial agreement is an opportunity to basically sidestep the jurisdiction of the family court and enter into a bargain that:
- Both parties agree with;
- Is tailored to their individual needs; and
- Meets their current and future requirements effectively.
It can deal with:
- The division of property and assets, including superannuation entitlements and debts;
- Financial support of one party by the other;
- Any incidental issues.
It’s a way to give some greater certainty to the people in the relationship, and potentially increase the trust and the peace in that relationship. This is particularly helpful for couples who are entering a second or subsequent marriage, or are bringing significant wealth into the relationship or expect to inherit in the not too distant future. For those people, there is peace of mind in knowing that they have some control over what happens to those assets if the relationship goes south.
When should you enter into an agreement?
Financial agreements often come up as part of planning for a marriage, because the couple is talking about their future and how that looks. However, you can enter into such an agreement at any time.
Ideally, you’d at least open the discussions well before you’re planning a wedding. As we’ll discuss in a later article, financial agreements that are finalised just before the wedding day can be vulnerable to a challenge given the stress and pressure that people can often feel at those times.
However, it is inescapable that an upcoming marriage is often the thing that puts a financial agreement on the radar.
For some couples, the prompt is a previous property division. Going through the process of separation can be stressful. Trying to come to an agreement on how property is divided is especially difficult when emotions are running high. When you’ve been through the journey once, it’s understandable that you’ll be looking for ways to avoid it a second time.
For other couples, especially where there is considerable wealth involved, a financial agreement may assist each person to protect their individual wealth brought to the relationship in the event of a split by excluding the property they bring to the relationship, and working out a way forward for how they deal with any jointly acquired property.
It can be useful to couples to use a mediator or a counsellor to facilitate that discussion and keep the momentum around the decisions and then look to their lawyers to prepare the agreement.
There are particular provisions of the Family Law Act that need to be complied with in order for those agreements to be binding. As the court doesn’t get involved with the agreement, those requirements must be strictly adhered to.
For a financial agreement to be legally binding, both parties must have:
- signed the agreement; and
- received independent legal advice about the meaning and effect of the agreement and the advantages and disadvantages of entering into it at that time before signing.
This is in order to ensure that the agreement is entered into freely by both parties and that they each understand what they’re agreeing to. There needs to be a statement given by each lawyer to the effect that appropriate advice in line with the provisions of the Act has been given.
It is often a good idea for people to work with their accountants and financial planners also when these agreements are being prepared, to ensure all relevant considerations are taken into account.
If you are thinking of entering into a financial agreement, it is important that you receive expert legal advice. Get in touch with Toowoomba Lawyers us on 1300 068 736 for advice that takes into account your particular circumstances and goals.
This publication has been carefully prepared, but it has been written in brief and general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.