Simon Creek, Managing Director and Head of Family answers some of the most frequently asked questions around financial agreements.
What is a Binding Financial Agreement?
It is a written agreement between two people which can be made:
- before marriage;
- during marriage, but before separation;
- during marriage, but after separation; or
- after divorce.
It usually spells out the agreement reached between the couple as to their finances, and the division of their assets, if their relationship comes to an end. A Binding Financial Agreement may also incorporate other matters incidental or ancillary to property issues, such as spousal maintenance and child support.
Who can enter into a Binding Financial Agreement?
As stated above, a Binding Financial Agreement can be entered into prior to marriage, during a marriage but before separation, during a marriage but after separation, or after a divorce. Therefore, parties who are intending to marry, are married, are separated, or are divorced may enter into such an agreement to divide their assets, provide for payment of child support payable by one of the parties, or for payment of spousal maintenance that might be payable by one of the parties to the other.
A Binding Financial Agreement may also be entered into by de facto parties before a de facto relationship begins, during the de facto relationship or after the end of the de facto relationship. The same issues as those found in Binding Financial Agreements for marriages (except superannuation) can be included in a Binding Financial Agreement for a de facto relationship.
The advantages of a Binding Financial Agreement
A Binding Financial Agreement is intended to avoid the need for Court proceedings. It is a versatile document as it can be entered into before or during marriage, after separation or after divorce in order to record an agreement as to the division of assets between the parties.
A Binding Financial Agreement may be used after separation to effect an interim distribution of property if the parties do not wish to determine property and maintenance matters on a final basis. For example, you may be elderly and may wish to keep a farm or business together for the sake of your children. It may also be registered as a child support agreement until such time as an assessment is issued by the Child Support Agency.
In the case where bankruptcy is involved, both property and maintenance obligations that are detailed in a Binding Financial Agreement are enforceable against the bankrupt, enforceable against any property not held by the trustee in bankruptcy, and provable in the bankrupt estate, if the agreement was made before the date of bankruptcy. Any obligations that may arise from a Binding Financial Agreement that has come into effect will also survive the bankruptcy.
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What are the disadvantages of a Binding Financial Agreement?
A Binding Financial Agreement can be a costly document to prepare, due to the fact that each of the parties will require very specific and detailed independent legal advice. There are strict requirements for a Binding Financial Agreement, and there are broad grounds upon which they can be set aside. This can make the document costly to negotiate, prepare, and provide advice on.
In addition, parties may incur significant costs in relation to a proposed “prior to marriage” agreement which may never actually be signed and/or in complex asset situations, a party may incur costs associated with engaging a financial advisor to provide comprehensive information on the value of that party’s assets.
Due to the costs, complexity and risks involved, the use of a Binding Financial Agreement before marriage, or during marriage but after separation, may be limited to situations where both parties are older, perhaps already have children, and one or both have substantial assets or income, the likelihood of substantial inheritances, or have assets they want to protect for children of an earlier relationship.
At present, there is no process for the registration of Binding Financial Agreements with the Family Court of Western Australia, and there is no indication from the Court that a registration scheme will be implemented in the near future.
In most circumstances, the Binding Financial Agreement itself is not subject to ad valorem stamp duty; however, the transactions that are set out in a Binding Financial Agreement may be subject to stamp duty liability or tax consequences.
Who can prepare a Binding Financial Agreement for me?
Due to the requirement for each party to receive very specific and detailed independent legal advice, it is necessary to seek the assistance of a solicitor with experience in this area. The solicitor can guide you in the preparation of the agreement and can assist you to ensure that the agreement is comprehensive, accurately records your wishes and is likely to be as binding as possible.
It is important that the parties to the agreement give full disclosure of their current financial circumstances. Should either party not fully disclose their financial circumstances, there is the potential that the Binding Financial Agreement may be set aside in the future when the parties seek to rely upon it. This is only one of a number of grounds upon which a Binding Financial Agreement can be set aside. Therefore it is essential that full disclosure is given to your solicitor and that both the intended parties to the agreement receive detailed independent legal advice.
This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.