17 Mar How to avoid high family law costs
The benefits of Binding Financial Agreements.
The intention of most couples separating is to minimise the heartache and legal fees associated with Family Lawyers and the Family Court. Unfortunately, most people only think about this factor when they are going through the process. However, the best time to think about a potential end of a relationship and its financial impacts, is actually at the beginning of a relationship or marriage. As dark and negative as that may seem, it could be the smartest decision of your life.
While no-one goes into a relationship thinking it will end, the reality is that over 50 percent of marriages end in divorce. Add to that the amount of de facto relationships that go awry, there is a chance that most of us will be in a situation where our financial wealth and assets could be vulnerable.
What is a BFA?
Binding Financial Agreements (BFA) are probably most commonly known by the American term prenuptial agreement or ‘prenup’. As suggested, it can be a financial agreement entered into before marriage but it isn’t limited to this. It is a legally binding document under the Family Law Act which stipulates how a couple’s assets will be distributed upon a breakdown of a relationship.
BFA’s can also apply to many scenarios but the most popular is when parties are living together in a de facto relationship or about to get married. There has been significant shifts in the laws around BFA’s since their implementation many years ago which means these types of agreements are at their strongest early on in a relationship. While these can be applied after marriage there are risks. If it is a long-term marriage then the big question is ultimately if the BFA is fair and equitable which it may not be due to the contribution arguments that flow from a long-term marriage.
The agreement outlines the terms of dividing assets in the case of a separation. In the instance of a legal separation, if proven valid, the Family Court will enforce the agreement. Neither party will be able to seek a settlement separately to what is outlined in this contract.
BFA’s can also be used as an alternative to record a final property settlement which can also finalise any potential spousal maintenance or child support matters. Most will factor in a requirement to attend dispute resolution before advancing any form of extensive litigation.
Why get a Binding Financial Agreement?
The most common reason is that it provides peace of mind for couples about to marry or cohabitate (see our article about the definition and risks of cohabitation here). For families with a high-value net worth or a family wealth, this can be an immensely valuable tool, even families or business associates like the idea of their family member or business partner securing any issues with future claim that might impact them.
Advantages of a BFA include:
- Costs are kept under control – as mentioned above, BFAs significantly minimise the risks of potential lengthy, costly and emotional legal costs.
- A more amicable break up – because it is known from the outset who will get what, and the right expectation is set from the outset, it can reduce the emotional impact at the end of a relationship.
- Speedy separation – because it is all laid out in writing, the process is a lot faster than dividing assets through mediation or the courts, where proceedings can last years – even decades in excessive instances!
The risks of not having a BFA
The risks are that without an agreement, litigation for a property settlement could take a long time and end up costing a fortune in legal fees. All of which creates stress and impacts families. Further to this, you could find yourself in a precarious situation where you lose a lot more than you should and expose your family and business to risk. For these reasons, BFAs should be considered to be incorporated into corporate governance and succession planning.
Are prenups only for the filthy rich?
While Hollywood would have you think you need to be of Dynasty-level wealth, there are benefits to having a BFA in a range of circumstances.
Some of these include:
- you have more wealth (property, money or assets – including a business or investment) at the beginning of your relationship and you need and want to preserve these
- you are or may be entitled to an inheritance or large gift
- you desire to avoid future litigation in the case of a relationship breakdown
- you have children from a previous relationship who need financial protection.
The risks of BFAs
There are some potential disadvantages of these types of agreements that should be considered under advisement of a Family Lawyer experienced in Binding Financial Agreements.
In some instances, they could be used to protect one party’s interest more. This is most common if one person has significantly more wealth than the other.
It can also place a strain on the relationship if one party isn’t on board with the process. That is why we recommend the below steps.
If prepared by a Family Lawyer who is not experienced in preparing these documents, there could be many holes within the contract which doesn’t allow for secure protection.
For example, they need to be carefully drafted to consider structures such as family trusts, companies and self-managed super funds.
It should also be noted that these agreements cannot cover off on all the scenarios in a relationship that may impact a financial outcome, however, they do go a long way to recording the parties intent and minimising litigation.
How to approach the subject of a BFA with your partner
Plant the seeds early. If you believe this is something you would like in your current or future relationship, get informed now. Share these thoughts and views with your partner when the relationship gets more serious, allowing opportunities for discussions and questions. You may even wish to speak to a Legal Professional together.
This can be a great opportunity to have an open discussion about values and ensure you are truly aligned.
- Start the process early in a relationship
- Obtain independent legal advice
- Be prepared that BFAs do not cover all scenarios
- Review regularly
Interested in getting a BFA?
It should be noted that parties are required to obtain independent legal advice in the preparation of a BFA and there is a criteria that must be followed to ensure they are legally binding. It is therefore imperative that you choose a Family Lawyer who is exceptionally experienced in preparing Binding Financial Agreements.
If you would like expert guidance on your matter, contact Toomey Family Law. With decades of experience with complex, high-net worth estates and property settlements, we can advise the best options for you.