In brief - What is the purpose of a binding financial agreement?
Binding financial agreements are one way in which people seek to protect or quarantine their assets prior to, during or after a relationship, whether that relationship is a de facto relationship, same sex relationship or a marriage.
Certainty in the event of separation
A binding financial agreement allows parties to agree on what the division of assets will be in the event that they separate. It is binding on the parties unless it is set aside by a court and gives parties to a relationship certainty about what they will receive in the event that they do separate. The benefit is that these decisions are made when the relationship is happy and harmonious, rather than clouded by anger or bitterness.
Consider all the circumstances carefully
Parties must be aware that if they enter into a binding financial agreement, the court is excluded from interfering with the terms or changing the provisions of the agreement. If people are considering entering into such an agreement, they should ensure that they consider all of the circumstances which are likely to have a financial impact on them during the relationship and be very well prepared and informed prior to signing the agreement. There is a real danger that a binding financial agreement may result in an unjust division of property on a relationship breakdown. A person's circumstances at the beginning of the relationship are not the same as their circumstances 20 to 30 years later.
Pre-relationship assets
It is sensible to consider entering into one of these agreements if entering a relationship, particularly if you have pre-relationship assets. Often people will use them to protect an expected inheritance. They can be used as part of a comprehensive estate plan.
Reviewing binding financial agreements
It is advisable to review a binding financial agreement on the occurrence of significant events such as the birth of children, purchase of property or the receipt of an inheritance or gifts from family members. This will go some way towards protecting both parties to the binding financial agreement and guarding against the agreement being set aside under one of the provisions of the Family Law Act 1975 (Cth) which allows them to be set aside.
Setting aside a binding financial agreement
A binding financial agreement can be set aside where:
- It was obtained by fraud
- It is void or unenforceable (that is, it was made under duress or by mistake, or undue influence was involved)
- It is impracticable for all or part of the agreement to be carried out
- There has been a material change in the care of a child, leading to hardship if the agreement remains
- A party has been engaged in unconscionable conduct when making the binding financial agreement (where one spouse is at a disadvantage, the other spouse knows they are at a disadvantage and the agreement runs contrary to good conscience)
The above grounds for setting aside a binding financial agreement can be quite vague and open to interpretation by a court. The courts have been prepared on a number of occasions to set these agreements aside, particularly if the court considers that they are unfair.
Seeking advice from a family law specialist
Before you consider entering into a binding financial agreement, it is important that you obtain detailed advice from a family law specialist who will be able to advise you on whether and what type of binding financial agreement is appropriate in your individual circumstances.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
