Attwood Marshall Lawyers Consulting Family Law Special Counsel, Michael Twohill joins Robyn Hyland on Radio 4CRB to shed light on Binding Financial Agreements in Australia and what older couples should consider when entering relationships later in life.
What is a Binding Financial Agreement?
Binding Financial Agreements are often misunderstood or overlooked; however, they should be considered by all couples, particularly older couples who have accumulated more assets over their lifetime and significantly so in the case of ‘blended families’.
A Binding Financial Agreement, also known as a BFA, is a legal contract between couples which outlines how their assets, liabilities and financial resources would be divided in the event of a separation or divorce. These types of agreements provide clarity and certainty regarding property settlements and financial matters should the relationship end, which can become extremely difficult to settle when emotions are running high.
It is a well-known fact that not all relationships stand the test of time. While contemplating the end of a relationship as the new relationship starts to flourish may seem counterintuitive, it is crucial to recognise the significance of open and honest conversations about what may happen to finances and property if the relationship does not work out.
When the agreement is properly drafted by an experienced family lawyer, it allows couples to negotiate and mutually agree on the distribution of their assets and financial resources in the unfortunate event of separation. This ensures a fair and equitable division based on their individual circumstances, rather than relying on court intervention after a relationship breaks down if a court must decide who will get what.
By executing a Binding Financial Agreement, a couple gets to customise that division according to their specific needs and circumstances, which can empower couples to tailor the division of assets to suit their situation and what they are comfortable with. They can consider factors such as contributions, both initial contributions and contributions made during the relationship, future financial needs, and the care of any dependent children from current or previous relationships.
In this article we break down the social taboo surrounding Binding Financial Agreements and explain the security and stability that such agreements can offer in the face of a potential separation.
Factors to consider when entering a relationship later in life
Older couples entering relationships later in life, whether it be a de facto relationship or their 2nd, or 3rd marriage, often have more complex financial situations, including assets, investments, and potential inheritances they have received during their lifetime.
It is crucial for older couples to have an open and honest discussion about their financial expectations when entering a new relationship, as well as any debts they have accumulated, and existing assets.
It is not just the matter of how property may be divided if a relationship doesn’t work out, there can be overarching issues that impact your estate plan, potential health issues that arise in the future, and a desire to support adult children from previous relationships or marriages.
All these factors need to be considered when entering into a Binding Financial Agreement.
One of the most common misconceptions is that Binding Financial Agreements are only for extremely wealthy individuals. This simply isn’t true. Binding Financial Agreements can benefit all couples, no matter what their financial circumstances involve.
Then there is also the attitude of some couples that they don’t want to tempt fate and plan for the demise of their relationship.
No one wants to think at the start of a new relationship that it may end one day. But the reality is, many relationships don’t last for one reason or another. In fact, Australia comes in 32nd position on the list of world’s highest divorce rates. The latest statistics show that the crude divorce rate in Australia is 2.2 divorces per 1,000 people, with Queensland experiencing the highest crude divorce rate in the country reporting 2.6 divorces per 1,000 people in the state. Of more concern is that around 75% of people either remarry or re-partner after they separate or divorce (or after their partner dies).
There is nothing wrong with having upfront conversations about “IF” that happens in the future and putting a plan in place to cover yourselves.
That doesn’t mean your relationship “WILL” end.
Binding Financial Agreements are also most associated with marriage and divorce, but these types of agreements are just as relevant for de facto couples. Just like married couples, de facto couples can also apply for a property settlement and spousal maintenance under the Family Law Act if their relationship comes to an end. Therefore, a Binding Financial Agreement can serve de facto couples in the same way as married couples, saving the time and stress involved in negotiating a property settlement after the relationship breaks down.
Anyone who has had to go through a divorce and property settlement knows the stress and costs associated, and no doubt this is not an experience they want to repeat in the future if another relationship does not work out.
The process to create a Binding Financial Agreement
To create a Binding Financial Agreement, the following steps must be followed:
- Get legal advice: Both parties must seek independent legal advice from different lawyers to ensure both their best interests are met.
- Financial disclosure: Both parties must provide full and honest disclosure of their financial circumstances. This includes disclosing information about assets, liabilities, income, and superannuation. Full disclosure is imperative to ensure the agreement accurately reflects the parties’ financial positions.
- Drafting the agreement: The next step involves drafting the Binding Financial Agreement. An experienced family lawyer will ensure the document is compliant and adheres to the legal requirements, addressing specific needs and circumstances of both parties.
- Negotiate: After obtaining legal advice and completing financial disclosure, negotiations can begin. This is when both parties can discuss their preferences, concerns, and objectives, in order to reach a mutually acceptable fair agreement.
- Legal advice (again!): Once the agreement is drafted, both parties once again should obtain independent legal advice to ensure that each party understands the terms and consequences of the agreement BEFORE signing it.
- Certificate of Independent Legal Advice: The lawyers representing both sides will then provide a certificate of independent legal advice, which is a requirement for the agreement to be legally binding.
- Execute the agreement: After legal advice has been obtained and everyone is satisfied with the document, all parties can sign the agreement. Signing of the document must not be done under duress or pressure.
What happens if one person has significantly more assets or a higher income than the other?
When there is a substantial difference in assets or income between partners, it can impact the division of assets in the event of separation or divorce.
It will come down to the unique circumstances of both parties and what a “fair and equitable outcome” means for them.
Fairness is a guiding principle when it comes to property division and both lawyers will always look at all factors impacting both sides to provide considered advice when it comes to drafting a Binding Financial Agreement.
Binding Financial Agreements and your estate plan
The terms of the financial agreement may require the parties to reconsider the terms of their Wills as well as other estate planning documents. It is important for the parties to obtain independent financial and legal advice about their estate planning at the time of the discussions regarding their financial agreement to ensure that there is consistency between the two.
Modifying or revoking a Binding Financial Agreement
The parties have the capacity to vary or revoke a financial agreement at any time, however, for that to occur there must be an agreement in writing or an order of the court.
It is important to note here that a new financial agreement cannot be varied or revoked by simply scribbling changes on the original agreement. The original financial agreement must be terminated in writing first and that is usually done by way of a Termination Agreement signed by the parties at the same time as the signing of the replacement financial agreement.
Financial agreements are often the subject of modification given the event of a change in circumstances and as like Wills and Enduring Powers of Attorneys, it is prudent for parties to check the terms of their financial agreement on a regular basis to ensure that there is no need for modification.
Attwood Marshall Lawyers – helping families through difficult times
Attwood Marshall Lawyers have a dedicated team of family lawyers who practice exclusively in this complex area of law.
We believe in helping families maintain positive relationships and resolve dispute efficiently when they arise to allow all parties to move on with their lives as quickly as possible.
If you need help with a family law matter, including entering a Binding Financial Agreement, our Family Law team are ready to help. Please contact Family Law Department Manager, Donna Tolley, on direct line 07 5506 8241, email email@example.com or free call 1800 621 071 to arrange an appointment.
Alternatively, you can book an appointment instantly using our online booking app. Click here to book online now.