Binding Financial Agreements (AKA - Prenuptial Agreements)


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Binding Financial Agreements (AKA - Prenuptial Agreements)

A Summary of Comments Made on Josie Kay’s Money Matters Program – February, 2010

1. Introduction

1.1 The comments made on the Money Matters program are made to provide a general overview of pre-nuptial agreements. The advice should not be treated as specifically applicable in your case and you should consult an experienced family law practitioner if you wish to enter or review an existing prenuptial agreement. This is because each facto scenario is different and all fact scenarios will not receive the same advice.

2. The ‘Concept of a Pre-Nuptial’ Agreement

2.1. A prenuptial agreement or “prenup” is the socially-used term which describes a Binding Financial Agreement made pursuant to the Family Law Act 1975.

2.2. Whatever name you use, it is a contract, designed to pre-determine the financial outcome for each spouse upon the conclusion of a marriage and now also a de facto relationship, although we would call those agreements simply binding financial agreements.

2.3-. Pre-nuptial agreements are dealt with by the Family Law Act 1975. For parties entering a marriage, the Family Law Act ‘|975 has governed pre-nuptial agreements since 2000 and for parties entering a de facto relationship, the Family Law Act 1975 has governed binding financial agreements for de facto couples commencing their relationship since 15“ March, 2009. Prior to the latter date, de facto couples could enter an agreement if permitted by the laws of their home State.

2.4. Same sex couples are still governed by the laws of their own State and should absolutely seek specific advice from their own lawyer.

3. Their Prevalence

3.1 Unlike the United States, where legislation has been on foot since 1983, Australia is only now beginning to embrace Agreements being negotiated and entered at the start of a relationship as opposed to trying to resolve matters at the end of a relationship.

3.2. Their prevalence is increasing in Australia primarily as a result of:-

3.2.1. Increased public awareness of their existence as a result Of media Commentary; and

3.2.2. Increased focus as a result of well-publicised asset and estate planning work being engaged in by lawyers, accountants and financial planners; and

3.2.3. A greater focus within families where there is an effort afoot to keep family assets within the direct family descendants of those who create wealth and assets.

3.2.4. A desire lo create some certainty for couples and avoid costly legal battles and unpleasantness at the end of a relationship .

4. Difficulties

4.1. Many lawyers cringe when they are asked to draft an agreement or advise someone in relation to a prenuptial agreement or binding financial agreement at the outset of a relationship.

4.2.1. Negotiating a pre-nuptial agreement during the Course of a period of engagement (an otherwise happy time having fallen in love with someone), forces the focus of an otherwise happy couple, towards the unhappy task of pre-determining what might happen if they separate.

4.2.2. The same gamut of emotions which are visited when an actual separation occurs often arises. Those emotions are reactive to either how mean or stingy someone is perceived as being or perhaps how demanding or how much of a digger” someone is perceived as being. Happily for lawyers, the reactions are usually less than at those extremes, but nevertheless, weddings and relationships have been abandoned as a result of difficulties in negotiating and agreement.

4.2.3. The drafting of an agreement which foresees the many variables which might arise in the future, calls for a couple to sit down and give detailed consideration to some serious issues. One of the most difficult issues is what happens when a child is born within the relationship. The custodial arrangements cannot be guessed in advance, nor can the subjective needs of the child or the parents during the chi|d’5 lifetime.

4.2.4. Many lawyers are keen to maintain their reputations and their no claim bonus insurance status and want, wherever possible to avoid damage to their reputation or a law suit for professional negligence in the event an agreement they drafted fails or is set aside, so as to no longer provide the parties with the protection it purported to offer.

4.3. For this reason, many lawyers make modified recommendations about prenuptial agreements and binding financial! agreements for new relationships.

4.4. What are they? Well they include some of the following thoughts:-

4.4.1. The best candidates for prenuptial agreements or binding financial agreements at the commencement of a new relationship are:- Mature age couples who intend to remain childless; and Couples, even of a young age, who are seeking an agreement for the purposes of “quarantining” only some assets, leaving the balance open for negotiation or property settlement.

4.4.2. For mature couples or second relationships, a well drafted pre-nuptial agreement will pre-determine what will happen upon separation, and, upon proper compliance with the legislation, that contractual arrangement will govern the concussion of their financial relationship.

4.4.3. For younger couples or those in their first relationship, they are often encouraged by lawyers to use agreements to “quarantine” and keep safe from claims by the other spouse, any:- Assets they had built up before the relationship; and/or Any gifts, inheritances or family wealth they might receive from their family or benefactors during the relationship/ in the future.

5. Problems with validity

5.1.The Family Law Act 1975 specifically says that the law of contract will apply to these agreements.

5.2. This means that for family lawyers and their clients, you must think with a commercial mind and with an eye to contractual principles when you negotiate and draft the agreement.

5.3. The legislation, the cases decided about agreements and the law of contract, tell us that, when negotiating, preparing and ultimately entering an agreements-

5.3.1. You must act reasonably and without placing duress or pressure or make threats when someone is being asked to enter an agreement;

5.3.2. You must allow a reasonable time between tabling an agreement for negotiation and an impending wedding;

5.3.3. You must not make misrepresentations or tell untruths or engage in fraudulent behaviour in the negotiation process;

5.3.4. You must properly disclose the assets which exist or which might exist – how else will someone know what they may be promising never to claim against?

5.3.5. Your agreement must comply with strict rules set out En the Family Law Act1975;

5.3.6. You must see a lawyer to get proper advice concerning the agreement as opposed to just seeing one for the purposes of having your signature on the agreement witnessed;

just seeing one for the purposes of having your signature on the agreement witnessed;

5.3.7. Your lawyer must sign a certificate and provide evidence to each party, to the effect that advice about the agreement was provided before you signed the agreement;

5.3.8. You must finally declare that your relationship has ended and each spouse must retain at least a copy of the agreement for their reference; and

5.3.9. Your agreement should not be being drafted to defeat claims by creditors or in bankruptcy.

5.4 If you have decided that an agreement is for you, whatever the reason, do yourself a favour and see an accredited specialist in family law and make sure that you have accurately and adequately prepared for a potential challenge to your agreement.

6. Estate Planning

6.1 Before closing, I might add that there has been growth in the notion that parents who have accumulated assets and wealth, might, as part of their asset, succession and estate planning, discuss with their children the entry of a binding financial agreement so as to ensure that their assets pass directly to their children, their grandchildren and great- grandchildren and never exit the hands of their direct descendants.

6.2 Parents are then deciding, depending upon whether their son and daughter-in-law or daughter and son-in-law will enter such an agreement, which quarantines any entitlement in the estate of the parents, how to deal with their assets.

6.3.1. Leaving a bequest for the child only if a binding financial agreement has been entered; or

6.3.2. Creating a trust whilst alive or a testamentary trust in lieu of a bequest, instead of passing assets to the child which might be claimed in a property settlement; or

6.3.3. Establishing a more complex Will in consultation with your Solicitor if there is no co-operation.

7. Costs

7.1. I am sometimes frustrated when l hear that people telephone a practitioner and ask what a prenuptial agreement or binding financial agreement might cost. Largely, my frustration arises because they are not easy documents and often need to be entered in consultation with clients, their parents, their accountants and their everyday solicitors.

7.2. They routinely involve negotiations; just the same as negotiations occur at the end of a relationship when deciding how to divide the assets and resources.

7.3. An agreement will take a diligent lawyer a number of hours to produce in first draft, before it is reviewed with the client and the accountant. It will take some hours to do that and a further period to engage with the lawyer acting for the other spouse to negotiate and go on to decide the final draft.

7.4. The more Complex the agreement, the greater the Cost.

7.5. In my practice, I usually see a client for a discounted initial interview, before I provide a cost estimate in writing.

7.6. Doing the best I can to estimate, in my experience, most agreements can be contained within a range of legal fees of between $3,000 and $10,000 not including GST.

8. Our Availability

8.1. My practice is a family law legal practice, so we are used to handling property settlement and maintenance matters, parenting matters, divorce, child support matters and estate planning matters.

8.2. There are five (5) family lawyers here and whilst based on the Gold Coast, we have handled matters throughout Australia and overseas.

8.3. The legal principles involved in Family Law are the same throughout the Country and with the advent of technology, a good family law legal practice can have clients in a great many places. ‘

8.4. We commonly work in tandem with accountants and other advisors to endeavour to achieve the most economic and client­specific successes possible.

If my staff and I can be of any assistance to you, enquiries can be directed- to Fiona Browne at my office (our new client officer) or by email to my address set out below. My thanks for tuning in and reading. Dean Evans Evans & Company Family Lawyers Qld Law Society Accredited Specialist – Family Law direct email: