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Pre & Post Nuptial, Cohabitation and Separation Agreements

 

What is a Binding Financial Agreement?

Binding Financial Agreements (a “BFA”) include what are often referred to as “Pre-nuptial Agreements”, “Post-nuptial Agreements”, “Cohabitation Agreements” and “Separation Agreements”. A BFA is an agreement between de facto or married couples before, during or after their relationship which sets out how their assets, financial resources and liabilities will be divided in the event of the breakdown of their relationship.

Essentially it is a contract. By making a BFA, the parties contract out of the right they otherwise would have to have the Family Courts decide upon the division of their property after they separate.

Who can enter into a Binding Financial Agreement?

Couples are able to enter into BFA’s whether they are:-

• Heterosexual or same sex de facto couples;
• Cohabitating or intending to cohabit;
• Married or intending to marry;
• Already separated or divorced.

Both parties to the BFA must ordinarily be resident in Australia and each of them must have their own independent legal advice regarding the agreement. Each of the lawyers who provide the legal advice to the parties, must sign a Certificate confirming the required advice has been given before their client signs the Agreement.

When can you enter into a Binding Financial Agreement?

For couples that are married or intending to marry, they can enter into a BFA:

Before they marry;

• During their marriage;
• After they separate;
• After their divorce

For existing de facto couples or couples who intend to start living together, they can enter into a BFA:

• Before they start living together;
• After cohabitation;
• After they separate. 

There is not anything in the legislation which says when you should not enter into a BFA. We do not recommend to our clients however, that they sign a BFA in the weeks leading up to their wedding, as it may give rise to an argument that the agreement was signed under duress.

How binding are they?

Agreements can be binding if all requirements are met:

• It must be signed by all parties;
• Before it is signed each party must obtain their own independent legal advice;
• The Lawyers who give the advice must give advice addressing specific issues and sign the required Certificate (which is to be provided to the client before they sign the BFA);
• A copy of the Certificate signed by each of the Lawyers, must be provided to both parties.

Succession Planning

Lawyers specialising in estate planning are often recommending clients consider entering into a BFA and referring them to a family lawyer to have one drafted.

Increasingly, adult children are encouraging a parent who is entering into a new relationship (or is already within a new relationship) to enter into a BFA to protect their parent, as well as their parent’s assets, from a claim by their new spouse if the relationship breaks down. Having a BFA from a succession planning point of view is also desirable when there are assets such as a family business or discretionary family trust.

Similarly, having a BFA can also protect a business partner from the aftermath of their business partner’s separation.

Advantages

• It can be used to protect or quarantine some or all assets from the other party, especially initial contributions made at the commencement of the relationship;
• It is always easier to make decisions about financial matters at a happy time within a relationship, rather than following separation;
• Making your own rules about the financial circumstances of your relationship when you are happy together, means that the agreement is more likely to reflect something both parties consider reasonable;
• It specifies the ground rules about how you are going to acquire and own property;
• It allows a couple to decide in advance what would be a fair distribution of their assets in the event of the breakdown of their relationship;
• It is a more cost effective solution than negotiating or going to court about the division of assets, financial resources and maintenance after separation;
• It gives each party peace of mind and clarity as to what will occur if the relationship breaks down;

• It provides reassurance if you have already been through a separation or divorce;
• It gives some security and peace of mind to people who already have children or assets when they are entering (or have entered) a new relationship;
• It avoids potentially divisive issues that could occur following separation;
• It is a form of insurance, a safety net you know you have if need be, despite you hoping you never need to use it;
• It can settle any suspicions or niggling doubts a party may have about financial issues;
• It can reassure the more financial partner that the other is in the relationship for the “right reasons” and not for materialistic reasons;
• It can be used as part of estate planning to ensure property passes as is wished;
• It confers stamp duty and CGT relief for separated couples subject to some exceptions.

Can BFA’s be set aside, updated, terminated?

There are other reasons a BFA could be set aside but the main reasons a BFA might be set aside are:

• The agreement was obtained by fraud – for example, non disclosure of relevant material or failure to disclose financial circumstances;
• There has been a material change in circumstances. This might be a child being born after the agreement is signed, or relating to the care, welfare and development of a child of the relationship, such that a party would suffer hardship if the Agreement was not set aside;
• If one party signed the agreement under duress. An example of duress might be if the Agreement was given to them the day before the wedding. Another might be if a party was pressured in some way. This could include physical or emotional abuse.

A court will not set aside an agreement simply because it is not fair to one of the parties. The requirement for both parties to have their own independent legal advice and obtain the appropriate Certificate from the lawyer who provides that advice, prevents an argument by one party later, that they did not understand what they were signing or its consequences.

BFA’s cannot be updated at all. If it is necessary to update a BFA, it must be terminated and a new BFA entered into.

Approaching a BFA with your Partner

One of the most frequent questions or concerns clients express to lawyers about BFA’s, relates to how to raise the issue of having a BFA with their partner. In our experience:

• Most spouses are happy to sign a BFA;
• They are so common these days that if one spouse is more financial than the other, both spouses have usually thought about their respective financial situation, such that one of them raising having a BFA is not usually a complete surprise;
• It is not uncommon for spouses to be more than willing to sign a BFA “to prove they are in the relationship for the right reasons”;
• Clients often comment that their relationship improves after they have a BFA in place as any suspicion or niggling doubt is removed, they have talked openly about their respective financial positions and how to combine finances (or not) moving forward, such that each know where they stand.
• If a spouse does not wish to sign a BFA, in circumstances where the other spouse wishes to protect or quarantine assets, then perhaps the couple need to review whether they have similar goals and a similar financial mindset.
• If spouses have different views about contributions and entitlements, it is best that be ascertained earlier in the relationship, rather than after separation when it is highly likely they will disagree about entitlements and/or how finances should be divided.

Can you prepare a BFA yourself?

You cannot prepare a binding and enforceable BFA without a lawyer. Some reasons why include:

• For it to be valid and binding you need a lawyer to provide a Certificate of having provided legal advice. That Certificate is also required to set out certain things within it and must be provided by the lawyer to their client before the client signs the BFA.
• It is only if a BFA is drafted correctly that it will prevent a party being able to go to Court about property settlement if you separate.
• A BFA s a complicated contract which, to address everything it needs to include to be binding, needs to be drafted by an appropriately experienced family lawyer;
• A BFA can be set aside if a party has not made full and adequate disclosure and the BFA will need to contain appropriate clauses to demonstrate this has occurred and any waiver of additional disclosure.
• It is only an experienced family lawyer who will be able to identify all issues which need to be addressed in a BFA and draft clauses to cover those situations.

Many people think they can draft up something themselves and find out too late, it has no effect and that it has not given them any protection at all.

Unfortunately there are no short cuts when it comes to safeguarding your assets and some may consider the initial cost of a BFA expensive. Ultimately however if your relationship breaks down, what your partner may end up being entitled to, the cost of litigation which may take months or years, not to mention the emotional cost of being involved in such proceedings, is far more expensive and often, almost unaffordable.

Ferguson Cannon Lawyers have extensive experience in this field. If you have any queries, please do not hesitate to contact Michelle Beatty on 1800 640 509.