Binding Financial Agreements
BackgroundThe Family Law Act 1975 allows a couple to control their own destiny on the breakup of the relationship, similar to a prenup agreement, used in the Californian legal system.
The law provides that parties may enter into an agreement known as a binding financial Agreement (“BFA”)
When entering into marriage or a relationship
During the marriage or relationship
On the breakdown of the marriage or relationship.
The BFA will set out the agreement between the couple and may include how they should deal with their assets during the marriage or relationship and what happens to the assets on the breakdown of the marriage or relationship. Generally it will aim to protect one party from a claim by the other party for the assets that have been accumulated at the time.
Keeping in step
The Family Law Act provides that the parties must comply with strict formalities before the BFA is binding. This requires each party to receive independent legal advice and the legal advisor to sign a certificate that provides that he or she has explained the BFA to the client and whether it is to the advantage of the client to enter into the BFA.
There also has to be strict compliance with the certificate to be provided by the lawyer and the original is retained by one party and a copy of the BFA and the certificate of the legal adviser is provided to the other party.
Wolf in Sheep’s Clothing In theory the BFA should be the solution that parties are seeking if they want to decide their future in the event of breakdown instead of leaving themselves at the mercy of the court.
However BFA’s have proved to be controversial, contentious and likely to be challenged at the first opportunity by a dissatisfied party.
On numerous occasions the courts have adopted an approach of trying to protect the weaker party where possible and have overturned BFA’s for different reasons such as
» The parties did not follow the strict requirements before it was signed;
» The weaker party was at a special disadvantage when it was signed;
» The lawyer did not explain the impact of the agreement sufficiently.
PracticalitiesGenerally one party will require a BFA before entering into a relationship or marriage in order to protect the assets that he or she has accumulated at that time.
This results in the other party often being presented with the BFA at short notice before the impending marriage with a request it must be signed or all bets are off.
If you are the person requesting the BFA in such circumstances it is likely to be challenged down the track on numerous grounds especially that the other party signed under duress or emotional instability and did not know what he or she was doing.
If a couple enters into a relationship with a similar asset portfolio usually there is no need to consider a BFA as neither party needs to protect his or her assets, unless special circumstances exist, such as one party can expect a large inheritance in the future.
If you need advice on how to protect your assets or whether you can make a claim for the assets of your partner that appears to be preserved, we are only a telephone call or email away.
We may be able to provide an approach that will give you peace of mind and could stabilise a shaky relationship caused by financial instability.