Binding Financial Agreements (often referred to as prenuptial or postnuptial agreements) are legal documents that can play a significant role in safeguarding your financial interests and assets. While they may not be the most romantic aspect of a relationship, they can provide essential protection and peace of mind. In this blog, we will explore what binding financial agreements are, why they are valuable, how they work, and the considerations to keep in mind when creating one.
What Are Binding Financial Agreements?
A binding financial agreement is a legal contract which is designed to protect the financial interest of both parties in the event of a separation during a marriage or de facto relationship. A binding financial agreement outlines how your financial affairs will be managed during the relationship and, crucially, what will happen in the event of a separation or divorce.
A Financial Agreement, if it is declared binding by the Court, ousts the Court’s jurisdiction in relation to financial proceedings between the parties generally, or in relation to specific financial issues. In other words, a Financial Agreement, if prepared and entered into properly, can be a way to ‘contract out’ of court proceedings for family law financial matters.
Parties may enter into a binding financial agreement:
1. Before the marriage or de facto relationship.
2. During the marriage or de facto relationship.
3. After the marriage or de facto relationship.
Why Consider a Binding Financial Agreement?
Whilst there are several compelling reasons to consider a binding financial agreement, an outline of a number of them are as follows:
1. Asset Protection
Binding Financial Agreements can safeguard pre-marital or pre-relationship assets, ensuring that they remain with the original owner in the event of a breakdown of the relationship.
2. Debt Protection
Binding Financial Agreements can also address how existing debts will be managed, protecting both parties from each other's financial liabilities.
3. Clarity and Certainty
Binding Financial Agreements provide clarity on financial expectations and can prevent misunderstandings during a divorce or separation.
4. Business Interests
For individuals with business interests, having a binding financial agreement in place can help protect your business from becoming a marital asset subject to property division.
How Do Binding Financial Agreements Work?
A financial agreement between the parties is only binding if:
1. The agreement is signed by both parties;
2. Before signing the agreement, each party is provided with independent legal advice from a legal practitioner concerning the effect of the agreement on the rights of that party and the advantages and disadvantages to that party of making the agreement at the time the advice was provided;
3. Each party was provided with a signed statement by the legal practitioner to the effect that the advice was provided;
4. A copy of that solicitor’s statement is given to the other party; and
5. The agreement has not been terminated nor set aside by the Court. The agreement, when binding, removes the power of the Court in relation to all financial matters to which the agreement applies.
It is important to note that the parties must ensure that they comply with their obligations at law insofar as disclosure is concerned prior to entering into a binding financial agreement.
Considerations and Limitations
It is important to be aware that binding financial agreements can be declared non-binding or set aside by a court. The Court has the discretion to set aside a binding financial agreement upon an application by either party. These circumstances can include the following:
1. A failure to disclose relevant matters, such as an interest in an asset;
2. The agreement was obtained by fraud or duress;
3. The agreement was entered into for the purpose of defrauding a person who is a party to a de facto relationship or a spouse or defeating the interests of that person in relation to any possible or pending application for a Court order in relation to the de facto relationship;
4. If the agreement was entered into for the purpose of defeating or defrauding a creditor or reckless disregard for the interest of a creditor or third party;
5. If the performance of the agreement is impracticable as a result of circumstances that have arisen after the agreement was entered into;
6. If either party to the agreement engaged in unconscionable conduct in relation to the making of the agreement;
7. If, after the agreement was entered into, a material change in circumstances relating to the care of the parties’ children occurs, which will cause hardship to the children or the person responsible for the care of the children;
8.If the agreement is uncertain or incomplete or has been obtained by undue influence, misrepresentation, mistake, fraud or other contractual irregularities; or
9. If the agreement deals with a superannuation interest which is unsplittable.
Conclusion
Binding financial agreements offer a practical and legally recognised way to protect your financial interests and provide clarity in your relationship. While they are not the most idealistic topic, they can be an essential tool for ensuring a secure and fair financial future for both partners. Engaging legal professionals and engaging in transparent communication with your partner are key to creating an agreement that works for both parties.
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