Financial agreements, often referred to as a “pre-nup”, “Binding Financial Agreement” or “a BFA”, are a way for parties to decide how to split their assets in the event of a relationship break down either before, during or after cohabitation or marriage.
What is a binding financial agreement?
In Australia, the division of property between two parties after a relationship breakdown is legislated in the Family Law Act 1975 and enforced by the Federal Circuit and Family Court of Australia. This means that once there has been a relationship breakdown, parties must divide their assets in a way that the Court agrees with, and the only way to opt of out of that system is through the use of a financial agreement.
When should I enter into a binding financial agreement?
A financial agreement can be made at any time, but the most common times to enter into a financial agreement are:
· Before moving in with your partner;
· Before marriage;
· Where there is to be an expected inheritance and you want to quarantine it from any potential separation; and
· After separation.
Why should I enter into a binding financial agreement?
Different couples will have different reasons at different stages of their relationship for wanting to enter into a financial agreement, including:
· Prior to moving in together or marrying, where the parties have been through previous separations and want to protect their assets for own children in the event of a relationship breakdown; and
· After separation, where the division of property that the parties have agreed upon would fall outside what the Court would find to be ‘just and equitable’.
How do I enter into a binding financial agreement?
If you are considering entering into a binding financial agreement, your first step might be to organise an initial consultation to discuss what you want your financial agreement to look like, and how it is to operate.
Often we have clients come in for their initial consultation requesting a financial agreement which provides that should the relationship breakdown, they will retain what they brought into the relationship and their partner will retain what they brought in. While this seems quite straight forward, the best financial agreement is a financial agreement that is future proofed and provides for all possible scenarios.
Below are some scenarios you may want to consider prior to your initial consultation:
Scenario 1 –
When the financial agreement was originally made, you owned a property which the financial agreement provided for you to retain upon a relationship breakdown. However, since the financial agreement was made many years have passed and you have since sold that property and purchased a larger property. Perhaps you have done this multiple times, and perhaps the property that you currently own was also bought jointly with your partner who sold a house which they owned and also contributed those sale proceeds to this jointly held property.
How would you like your financial agreement to deal with this scenario?
Scenario 2 –
You entered into a binding financial agreement prior to moving in with your partner many years ago, and you have since gotten married and had a child. Did the original financial agreement provide for what would happen if you were to get married? Does the way in which you divide your property change because a child is now involved, and does your original financial agreement provide for that change? Does the financial agreement provide for a scenario where there were two or more children?
Scenario 3 –
You entered into a binding financial agreement prior to moving in with your partner many years ago, and you have since gotten married and had a child. Due to your partner’s mother having a stroke and her husband having passed away, she now lives in your family home and you provide care and assistance for her. Due to her needs being high, you have reduced your work hours to help and care for her. Does the way in which you divide your property change because you have had to reduce your work hours to care for your spouse’s mother. Does your original financial agreement provide for that change?
How binding is a binding financial agreement?
As you can see from the above scenarios, while the intention behind entering into a financial agreement is often straight forward, the document itself needs to be exhaustingly detailed in order to ensure it is appropriately future-proofed and unable to be set aside at a later date when one party might decide the original agreement no longer suits them.
Importantly, for a financial agreement to be binding both parties to the agreement must receive independent legal advice from their own solicitors prior to signing the agreement.
If you would like to book in for an initial consultation to discuss entering into a financial agreement, please click here.