Arriving at a property settlement does not necessarily mean that you have to go to Court or file any documents with the Court. You can enter into a legally binding settlement agreement that is private. These agreements are known as Binding Financial Agreements.
What is a binding financial agreement?
A Binding Financial Agreement is a legal agreement under the Family Law Act 1975. It allows married or de facto parties to make a contract which formalises a financial settlement (including superannuation entitlements) should the relationship break down.
A Binding Financial Agreement can be made:
- before you are married, or start a de facto relationship;
- during the relationship; or
- after the relationship has broken down.
If you have separated, you can also formalise the terms of settlement by having Consent Orders drawn up, and lodged with the Court. This is a handy alternative to Binding Financial Agreements if you have already separated.
The advantages of using a Binding Financial Agreement are:
- You have the freedom to contract;
- no court appearance is required;
- versatility — can be used before or during marriage, after separation or after divorce;
- the agreement will include background facts which justify its terms and operation;
- The contract can include matters that are related to the property settlement, but necessary for its application. One example is dissolving or setting up a formal partnership. Another example arises in New South Wales where parties can include a release under the Family Law Provision Act 1982.
- Can be used after separation to effect an interim distribution of property if the parties do not want to determine property and maintenance matters on a final basis. For example, they may be elderly and want to keep a farm or business together for their children.
The disadvantages of using a Binding Financial Agreement are:
- each party requires very specific and detailed independent legal advice;
- there is no process for registration of financial agreements with a court with jurisdiction under the Family Law Act. This could be problematic if both parties lose their copies of the agreement and their solicitors’ copies cannot be located or have been destroyed;
- if the agreement is made before marriage or before separation, one party may be advantaged over the other;
- there is a risk of litigation many years later;
- transactions may not be exempt from stamp duty;
- the strict requirements for a financial agreement and the broad grounds upon which they can be set aside may make them more costly to negotiate, prepare and advise on than Consent Orders; and
- parties may incur significant costs in relation to a proposed pre-nuptial agreement which may never be executed.
What is a prenuptial agreement?
A prenuptial agreement is a type of Binding Financial Agreement that is made when two people are intending to get married or planning to live together in a de facto relationship.
A prenuptial agreement does two things: firstly it records the assets that each person will be bringing into the relation, secondly it spells out how the assets and liabilities will be divided in the future if the parties separate. This includes assets purchased by both of you throughout the relationship.
The agreement is normally legally binding. This means you should be comfortable with the terms of the agreement before you sign it. After it has been signed, there are only limited circumstances in which you can set aside the agreement.
The benefits for agreeing to make a prenuptial agreement are:
- In the event that you do separate from your partner, having a prenuptial agreement ready to go will make the divorce/separation process smoother and quicker.
- You will have clarity and certainty in knowing how the assets will be divided after separation.
- Avoid the costs of going through a property settlement, where there is no agreement on how the assets are to be divided.
- Provides you with a better chance of separating amicably, as the division of assets will already have been decided.
- Prenuptial agreements can provide protection to people who have significant assets before getting married or moving in with their partner.
However, prenuptial agreements may not always be enforceable. For example: if either person has not been honest and open about the assets that they had; if the agreement did not provide for the chance that there would be children in the future or if either person pressures or intimidates the other person into entering the agreement, there is a good chance that the agreement may be set aside if an application is made.
Prenuptial agreements are not documents that you can attempt to draft at home. These documents are complex, and require expert knowledge and skill. They are not suitable in all circumstances. Put simply, there is no substitute for detailed legal advice in this arena.
Can a financial agreement be challenged?
Binding Financial Agreements can be set aside by a court in a number of circumstances. They can only be set aside if an application is made to the Court. If no action is taken by either party, then you are expected to comply with the agreement.
Often the grounds are very technical and can be difficult to understand. We have attempted to breakdown the grounds to make them easier to understand. Below is a short list of the main grounds upon which a Binding Financial Agreement may be set aside:
- Has your former partner lied about assets and liabilities owned by him, in order to convince you to sign the financial agreement?
- Was the financial agreement signed with the intention of making sure that a person or company who your partner owed money to was being cheated out of receiving the money?
- Is the agreement incomplete, uncertain or made on the basis of mistake of a fact or law?
- Have you been pressured into signing the agreement? If so, you should also think about whether:
- The agreement is grossly unfair?
- There was a significant imbalance of bargaining power between you and your spouse when the agreement was signed?
- You had a proper chance to consider the agreement and get proper legal advice?
- You have been threatened with consequences if the document was not signed?
- You have mental health issues that place you in a position of disadvantage when negotiating the terms of the agreement?
- Has something occurred after the agreement was signed to make it impossible to follow through with the agreement?
- Has there been a change in circumstances in relation to child, causing hardship?
- If you agree to have the agreement revoked or set aside.
- Did the agreement contain a clause that was supposed to split the superannuation, only to find out later than the superannuation entitlement cannot be split?
If after reading the above list, you feel that one or more of the points applies to you, it would be prudent to get some legal advice about the enforceability of the agreement.
Talk to us about your separation.
Our Binding Financial Agreements are a useful way of deciding how the assets and liabilities will be divided after separation. It is no secret that they require expert drafting. If you are thinking about having a binding financial agreement drawn up, there is no substitute for thorough legal advice. The earlier you contact one of our experienced binding financial agreements Lawyers in Sydney & Parramatta , the sooner you will be able to enjoy the legal protection of an effective binding financial agreement.