What is a binding financial agreement? It’s a heavy-sounding, technical phrase that is often better known as a pre-nup. A prenuptial agreement just doesn’t seem like a very romantic or optimistic thing to do before you get married. What is a prenuptial agreement, or binding financial agreement, and what are the benefits of having one?
Although we don’t get married with the view to divorce, the truth is not all of our relationships go to plan – and that’s where a binding financial agreement provides some security. Sometimes the person we marry is not who we thought they were, or we fall out of love, or someone isn’t faithful, or traumatic life events just make it seem too hard to stay together. The Australian Bureau of Statistics report that 121,197 couples tied the knot in 2014. Of this number, it is estimated that one in three will subsequently divorce, reinforced by the statistics that 27.5 per cent of marriages involved people who had previously married.
Some of the other statistics also tell us that the median age of divorce in Australia for men is 45 and for females is 42.5 and the average length of marriage is 12 years before divorce. Armed with this information, having a conversation about a binding financial agreement should not seem silly or out of place for couples who are either getting married or are seriously committed to one another in a de-facto relationship. It’s important to know that a binding financial agreement can be signed by partners who are getting married, and by partners who simply want to live in a de facto relationship.
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We may not be familiar with pre-nups in our general circles of friends and acquaintances but we hear it in the gossip columns regularly. Apparently Beyoncé signed a prenuptial agreement that grants her a nice $5 million for every child she bears to Jay Z, and if they divorce, she gets $1 million for every year of the marriage. The way Jay Z sees it, it just makes sense as it gives a certain peace of mind and clarity given the total value of his fortune. The prenups, according to the rapper mogul, only work in favor of the marriage if they are done in a friendly, cooperative atmosphere.
Cheryl Bentley, Senior Associate from Mitchells Solicitors, says that to help protect against a messy relationship end from a financial perspective is “a binding financial agreement, or prenup as they are more commonly known. . . It is an agreement to determine how the assets of a relationship will be divided should the relationship break down and can cover issues such as ongoing maintenance and how assets will be split following a partner’s death”.
You don’t have to have millions or even hundreds of thousands to consider having a binding financial agreement. It is for anyone who is going to be sharing assets with a significant other.
What is a Binding Financial Agreement?
It is a private, binding legal agreement which provides how the assets and liabilities of a couple will be divided in the event of relationship breakdown and separation. The Family Law Act 1975 provides for parties to a marriage or de facto relationship to enter into a binding legal agreement for their financial arrangements should they decide they can no longer be a couple.
The agreement itself can cover a few different things including:
- financial settlement (which includes superannuation entitlements)
- financial support (spousal maintenance)
- any financial arrangements for the children (for example, who will pay school fees and medical costs)
Who is It For?
A binding financial agreement is for those getting married or before entering into a de-facto relationship. Although these legal agreements are for anyone getting married or entering into a de-facto relationship, they may be particularly pertinent when:
- this relationship is a second or subsequent one
- there are children from a previous relationship
- one person has significantly greater assets than their partner at the beginning of their relationship
- both partners have their own, significant assets that they’d like to protect
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When Can They Be Made?
A binding legal agreement about financial arrangements can be made before a relationship starts, during the relationship and even after a relationship has broken down. Both parties to a binding financial agreement must seek independent legal advice before signing – failure to do this means that the document won’t be legally binding.
What are the Advantages of Having a Binding Financial Agreement?
Having a binding financial agreement gives some security and surety to individuals entering into a relationship. In the event of relationship breakdown, having an agreement in place means that you are much more likely to get your divorce settled quickly and out of court.
Here at Divorce Lawyers Brisbane, we advise our clients to get binding financial agreements in place but note that a court can rip up the agreement if it is not fair and reasonable. A court can declare the document invalid if one of the parties to the agreement can prove fraud, duress or unconscionable conduct when the agreement was made. It can also be set aside if the agreement does not meet the specific requirements of the Family Law Act.
In the 2009 case of Kostres the Full Court set aside a binding financial agreement on the basis that its terms were ‘uncertain’.
In this case, the trouble was that at least a part of the supposed uncertainty arose from the fact that each side couldn’t agree on the meaning of a number of words within the document. Unfortunately, this very argument was taken by the Court to support the existence of uncertainty, as the following quote makes plain:
130. The differing arguments of the legal representatives in this case as to how the terms ‘acquired’, ‘assets’, ‘joint funds’ and ‘from their own moneys’ should be construed brings into sharp focus the ambiguities in those terms found in the drafting of clause 6 of the agreement.
Kostres highlights the fact that Judges tend to consider that the Family Law Act does a decent job of ensuring that justice and equity is achieved between parties, because it looks at direct, indirect and homemaker contributions, and takes into account the unique needs and resources of the parties.
If you’d like to discuss a binding financial agreement, no matter whether you’re entering a relationship, you’re already in a relationship or your relationship is breaking down, our friendly and experienced family lawyers can help.
We offer a free, 10-minute phone consultation with our family lawyers. Please contact us today!