Binding Financial Agreements: Are they worth the paper they are written on?
The answer is yes!
Well if they are done properly anyway. It is a common misconception that Binding Financial Agreements / Prenuptial Agreements are simple contracts between two people that must be followed when the agreement comes into effect. It is widely believed that all that is required for a written agreement to bind two parties to a relationship is that a lawyer witness the parties signature and read the agreement and advise on what it means to each party.
Neither of these beliefs is correct.
Firstly, as Binding Financial Agreements relate to parties to a personal relationship other factors need to be considered as would be considered under Australian family law. Normal contracts of a similar nature rely on the commerciality of the relationship. Family agreements need to take into account all of the contributions of each party to a relationship and the future of the parties (especially in relation to how the relationship may affect a party’s ability to support themselves in the future, especially when care of children needs to be considered.)
So what needs to happen to make a Binding Financial Agreement hold up to challenge in Court later on. What is needed to make them watertight? The short answer is ‘properly written advice’. The longer answer is obtaining from and providing each party (from separate lawyers) the following:
- Obtaining full details of the Binding Financial Agreement;
- Providing a full advice in writing about the rights and obligations of each party to the agreement and how it will operate;
That is the easy part. Because a party needs full advice in this day and age the party needs to know what would happen if the agreement didn’t exist and the parties were subject to Australian Family Law principles. So the following is needed:
- Full details of what each party is bringing to the relationship and if the relationship has commenced or is coming to an end, full details of all of the financial and non-financial (care of children and household) contributions of the parties.
- Details of superannuation contributions before, during and after the relationship as appropriate;
- A look to the future (including age, health and work experience/qualifications) to see who will have the ability to continue to earn income and at what level in the future;
- What would be a fair division at a future time; and
- Provide an advice based on all of this information to the party in writing.
This will then allow the lawyer to certify that the proper independent legal advice has been provided to the client. This is where the much of the time cost arise.
The Binding Financial Agreement will then need to be expertly drafted to encompass all aspects of the agreement and any contingencies that may arise in the future. This is where the time cost and certainty are built into the agreement.
So with this in mind, it is possible to find a lawyer who will give “independent legal advice” on the cheap however if challenged in Court the agreement will almost certainly be overturned and it won’t have been worth the paper it was written on.
Find a competent Lawyer and expect that from start to finish each party will probably part with $4,000 for the proper service (for basic agreements) but if you have family trusts and complex company structure expect to pay a lot more for a Binding Financial Agreement that is WORTH THE PAPER IT IS WRITTEN ON!