Family & Relationships
Binding financial agreements or Pre Nups
Owner, Tan and Tan Lawyers Pty Ltd
Binding Financial Agreements
Are they the next best thing to divorce
insurance?
For most of life’s vicissitudes there is an insurance
cover. For managing the financial aspects of a potential marriage or de facto
relationship breakdown there is a binding financial agreement (BFA).
Such agreements are the only security
that parties planning to enter into a de facto relationship or already married
have at their disposal for the protection of their assets if the marriage
sours. But beware, BFAs could not always be relied upon as legally binding as a
number of recent court decisions in Australia have demonstrated.
Information from unverifiable sources
suggests that a large number of marriages and de facto relationships are the
result of online dating. However an online profile would revel little if
anything about a person’s character and intentions. This is just one more
reason for people searching for their soul mate to consider ways of protecting
their assets.
This article summarises the main
features of a binding financial agreement, its use and the factors which will
most likely contribute for a BFA to be set aside by the courts.
1)
Brief
History
For married couples in Western Australia
changes to the Family Law Act 1975 (Cth)
which came into effect in December 2000 allowed parties about to marry or who were
married to sign a binding financial agreement about the financial arrangements
should their marriage break down. Parties were also permitted to enter into a BFA
upon the breakdown of their marriage.
Two years later, in December 2002, changes
to the Family Court Act 1997 (WA)
made BFAs available to de-facto couples including those of the same sex who
have lived in WA.
In March 2009 changes to the Family Law Act 1975 (Cth) made BFAs
available to de-facto couples in the rest of Australia.
2)
Definition
A Binding financial
agreement is a legal agreement between two spouses about maintenance the
division of assets should their marriage or de facto relationship break down.
Binding Financial Agreements are also known as
pre nuptial agreements (prenups), post nuptial agreements (postnups) or
separation agreements.
3)
The
law that governs BFAs in Western Australia:
a. The
law that governs BFAs for those contemplating marriage and all married couples is
the Family Law Act 1975 (Cth);
b. The
law that governs BFAs for all couples in a de facto relationship is the Family Court Act 1997 (WA).
4)
How
does it work?
The
forum where decisions about the division of assets of splitting couples are
made is the Family Court of Western Australia. A valid binding financial agreement
however ousts the jurisdiction of the court. It prevents either party from making
an application to the court for division of assets in property settlement
different from the terms of the agreement. A BFA does not bar the parties from
seeking an order from the Family Court to set the agreement aside. Some of the
arguments for seeking such orders are discussed later in the article.
5)
When
can I enter into a BFA?
a. Parties
can enter into a BFA before marriage or before moving together for de facto
couples.
b. During
marriage or cohabitation.
c. After
separation.
6)
What
matters can a BFA cover?
a. Financial
settlement (property settlement) – all or selected property of the parties. It
may include property acquired before or during the marriage or de facto
relationship.
b. Financial
resources – for example any inheritance that a party may receive during the
marriage.
c. Rules
about buying and owning property – the parties may agree about whose name the
property will be registered in, who will be paying for the mortgage and the
maintenance of the property etc.
d. Superannuation
is considered property and therefore parties may agree on the division of their
respective superannuation interests in case of separation.
e. Financial
support (spousal maintenance);
f. Any
incidental issues
7)
What
doesn’t a BFA cover?
a. Child
support;
b. Non-matrimonial
issue such as house duties;
c. A
BFA is not a replacement for a valid will. It is however an important part of a
person’s estate plan.
8)
How
much does it cost?
The preparation by a BFA is only a
fraction of the costs of property settlement litigation. The preparation of a BFA
starts from around $2,000 plus GST compared to the cost of court litigation
which may range up to $35,000 in cost for a simple matter.
9)
Legal
requirements for a valid BFA
There are a large number of legal
requirements that must be satisfied as a precondition for a valid BFA. They
include the following matters:
a. The
agreement must be signed by both parties;
b. Both parties should receive independent legal and
financial advice before signing;
c. The
agreement must contain, in relation to each party, a statement to the effect
that the party to whom the statement relates has been provided, before the Agreement
was signed by him or her, with independent legal advice from a legal
practitioner as to the following matters:
i. The
effect of the Agreement on the rights of both parties;
ii. Whether
or not at that time when the advice was provided it was to the advantage
financially or otherwise of that party to make the Agreement.
d. Paragraph
11 discusses further issues that may impact on the validity of the agreement.
10) What are the benefits of BFA?
The following list contains some of the
commonly cited benefits of a binding financial agreement:
a. Provide
certainty by means of a predetermined outcome in the case of separation;
b. Protection
of personal and business assets from future dispute;
c. In
contracts to court made property settlement orders a BFA does not have to be an
equitable one. Therefore one party which has significantly more assets than the
other party can protect their assets better than by court orders;
d. Protection
of inheritances received during the relationship;
e. The
agreement stays private as the matter does not have to be argued in open court;
f. Financial
disclosure is required for the validity of the agreement but no further disclosure
is necessary to the court;
g. The
costs for preparing a BFA ($2,000 – 3,000) are significantly lower compared
with the costs of consent orders ($6,000 – 8,000) and only a fraction of the
costs of litigation (estimated at $35,000 depending on the circumstances of
each case);
h. The recitals
(the introduction to the agreement) can be used to give the background to the
agreement and to justify its terms;
i. The
same tax concessions apply as to court orders, e.g. the transfer of property
from one spouse to the other does not attract more than $20 stamp duty payment.
j. Unless
agreed otherwise a BFA will be binding on the estate in the event of death of
one of the parties;
k. A
BFA can reduce the potential for argument between the parties in relation to
financial matters both during and after their marriage and between the
surviving spouse and the family of the deceased partner.
l. Preservation
of family businesses;
m. A
BFA can reduce the potential for family disputes on the death of a party to a
second or subsequent marriage;
n. Protection
of the parties’ superannuation interests.
o.
Sets out maintenance arrangements in the
event of separation.
11) Can a BFA be set aside by the courts?
The Family Court in Australia has the
power to set aside a BFA on application by one of the parties to the agreement.
The legislation contains an extensive but not exhaustive list of the reasons
for setting aside BFAs. They include the following matters:
a. fraud,
including material non-disclosure (eg. failure to disclose the existence of or
the true value of an asset); or
b. a
party to the agreement entered into the agreement for the purpose of defrauding
or defeating a creditor or creditors of that party; or
c. the
agreement is void, voidable or unenforceable (ie. the agreement must be
prepared properly and in accordance with the legislation); or
d. circumstances
have arisen since the agreement was made which make it impossible or
impracticable for the agreement, or a part of the agreement, to be carried out;
or
e. since
the making of the agreement, a material change in circumstances has occurred
that was not dealt with or foreshadowed in the agreement (relating to the care,
welfare ad development of a child of the marriage) and, as a result of the
change, a party to the agreement will suffer hardship if the court does not set
the agreement aside; and
f.
a party’s conduct in the making of the
agreement was, in all the circumstances, unconscionable.
12) Can a BFA be terminated?
A BFA can be terminated in the following
circumtstances:
a. By
executing a termination agreement; or
b. By
executing a new BFA with a clause terminating the previous BFA.
13) Who is a BFA suitable for?
a. Parties
intending to marry;
b. Parties
intending to live in a de facto relationship;
c. Paties
who are married and not separated;
d. Parties
who are living in a de facto relationship and not separated;
e. Parties
who are married and separated but not divorced;
f. Parties
who were living in a de facto relationship and have separated;
g. Parties
who are divorced.
14) Who should seriously consider entering
into a BFA?
a. Parties
with significant disparity in personal wealth;
b. Parties
entering into second marriages – to avoid stress and costs with potential
breakdown of second marriage and provide for children of previous relationships.
In such circumstances a BFA becomes an important estate planning tool;
c. Parties
who want to keep assets acquired prior to marriage separate to jointly acquired
assets.
d. Parties who wish to use a BFA as an asset protection tool. For
example, where a couple wishes to register all their assets in the wife's name,
the BFA will set out the husband's
financial interests in those assets regardless of whose name the assets have
been registered in;
15) In what circumstances isn’t a BFA suitable?
a. If a
party is eligible for income tested pension, allowance or benefit at the time of signing
the agreement.
b. If
the parties want to include in the agreement parenting issues such as time the
children will spend with each parent;
c. Parties
who want to set out in the agreement the terms for child support payments.
d. Illegal
agreements;
e. Division
of household responsibilities;
f. Not
suitable for parties who wish to sign the agreement within 4 weeks prior to the
wedding because of the potential for a court to set it aside for undue
influence, usually by the party in the stronger bargaining position.
16) Is my BFA valid/legal outside of
Australia?
Australian binding financial agreements may not be upheld
by a foreign court. If the parties to an agreement move abroad they should seek
local legal advice about the validity of their agreement.
Summary
Binding financial agreements are not
only for the wealthy. Considering the high frequency of marriage breakdown as
well as the stress and time and the high cost of family law litigation a BFA
can benefit just about everyone.
As mentioned earlier in this paper not
all BFAs have been upheld by the courts in Australia. With the help of a
qualified and experienced lawyer in this area your BFA has a greater chance to
stand up in court.
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About the Author
Owner at Tan and Tan Lawyers Pty Ltd
Raymond was called to the WA bar in March 1990. He is the principal of one of the oldest Asian law firms in Perth WA.
Raymond is a registered migration agent and also the first Asian Public Notary in Perth WA.
Sleeping out as a homeless lawyer annually to support the homeless through the S...
