Binding Financial Agreements – legally binding?

bfa pre-nups binding financial agreementsThank you for your interest in Binding Financial Agreements (BFAs).

Legal Consolidated Barristers & Solicitors no longer does BFAs.

To date, not one of our BFAs has ever fallen foul of the Family Court or other Courts. We have stopped doing BFAs while we have a 100% success rate. The Family Court keeps looking at new ways to try and strike down a BFA. We do not want to be part of that arbitrary and uncertain system.

However, the information below may help you find an Australian lawyer still willing to do Binding Financial Agreements.

BFAs are also referred to as ‘prenuptial agreements’, ‘prenups’, defacto agreements and Superannuation Agreements (the last one being restricted to just Super).
They are available before, during and after marriage. They are available to de facto couples that never intend to marry. They include same-gender relationships.

BFAs keep the Family Court from interfering in your affairs if you ever separate. Instead, the BFA determines how you split up your assets. You can also enter into a BFA to just determine how your superannuation is split.

The BFA is a binding agreement on the couple

The Family Law Act sets strict and formal requirements. You must honestly and fully disclose your assets, debts and financial resources – from all over the world. It is important to use the services of your accountant and adviser to help ascertain your complete family balance sheet.

You must give full disclosure. You cannot underestimate any of your assets. You cannot leave out any of your assets. If you do then your BFA is not valid.

If you wish to hide anything from your partner then a BFA is not for you. If you wish to keep secret an asset then the BFA won’t work. If you have a secret asset overseas then you must disclose that and all other assets.

As lawyers, we are not involved in preparing your list of assets and their values. This is the job of your accountant. Your accountant prepares that information for the BFA. Your accountant signs off to confirm that the information regarding your assets is correct. This is a heavy burden for your accountant.

Both parties need private independent legal advice about the consequences of entering into a BFA so that: 1. you understand the document’s consequences; and 2. you are not being influenced by your partner.

 

Q: What are the most common purposes of a Binding Financial Agreement?

Many happily married couples complete BFAs dividing everything 50/50. While this sounds quite boring – it is what the Family Court often decides on anyway – so to set up the agreement now avoids the expense and emotional pain of the Family Court. The second most common BFA is the grandparents putting pressure on the son to enter into a BFA so that the farm remains with the next generation.

Q: At death, what prevails – the Will or the BFA?

The BFA is dormant until you separate. If you die without the BFA coming into effect, then the Will prevails. While in a challenge to a Will I have seen the Court prepared to look at the BFA, but it is certainly not bound by it, in those circumstances.

Q: Does the Family Court ignore BFAs?

Given that many BFAs are not enforced by the Court, people must wonder if they are worth the paper they are written on.

This is not usually the case. Most BFAs are enforceable. BFAs were introduced to remove the Court from the process of dividing up your assets. The government wants you to decide for yourself how you want your assets divided if you separate.

BFAs are a creature of Statute. The Statute sets out the exact way of doing them. No BFA set up by Brett Davies Lawyers or Legal Consolidated has ever been rejected by the Court.

Provided that:

  1. the parties truly and openly fully disclose all their assets and other matters;
  2. the drafting is without blemish by the 2 separate law practices, acting for each party; and
  3. the lawyers, accountants and financial planners all give sign off on what is fair

then the Binding Financial Agreement should be enforceable.

The Law Society warns lawyers to ensure that accountants and financial advisers are part of the process of BFA creation. At Legal Consolidated we have never drafted a BFA without the accountant and adviser being involved.

The first case of a BFA not being enforceable was Black v Black. (The Courts often use made up names to protect the parties.) In that case, the two separate law practices appeared to do everything correctly. Everything was signed off. Then there was one small change to the BFA, but only one firm of lawyers signed off on the amendment. The BFA was thrown out for the one blemish. Minor blemishes are sudden death to the validity of the BFA.

Legal Consolidated Barristers & Solicitors works extensively with family lawyers, financial planners and accountants to create BFAs. As a private tax law firm, we only take on clients introduced by one of those professional groups.

Q. What if there is duress?

What if the bridegroom threatens “If you don’t sign this Binding Financial Agreement the wedding is off”?

In the High Court decision of Thorne vs Kennedy Case B14/2017, the Court considered where the BFA was voidable under duress, undue influence, or unconscionable conduct. The primary judge found that Ms Thorne’s circumstances led her to believe that she had no choice and was powerless, to act in any way other than to sign the prenuptial agreement. It was, therefore, set aside.

The parties met on the internet in 2006, when Ms Thorne was living in the Middle East and Mr Kennedy was living in Australia. Ms Thorne was 36 years old, with no substantial assets. Mr Kennedy was 67 years old and was a property developer with assets of AUS$18 million. Ms Thorne moved to live in Australia in February 2007, and the wedding was set for 30 September 2007. On 19 September 2007, Mr Kennedy told Ms Thorne that they were going to see a solicitor to sign an agreement. Mr Kennedy told Ms Thorne that if she did not sign, the wedding would not go ahead. Ms Thorne ultimately signed the prenuptial agreement pursuant to section 90B of the Family Law Act on 26 September 2017, four days before the wedding. She did so against legal advice.

Ms Thorne’s lawyer said what she would get was “piteously small” in the context of Mr Kennedy’s wealth.

The High Court unanimously held that the agreements were voidable (pursuant to section 90K(1) of the Family Law Act) due to unconscionable conduct. The majority (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ and Nettle J in a separate judgment) also found that the agreements were voidable due to undue influence. Justice Gordon, in a separate judgment, held that the agreements ought to be set aside due to unconscionable conduct but not undue influence.

We consider duress, undue influence and unconscionable conduct.

Q. What if there is undue influence?

The court looks to the husband and wife conduction. Was there unconscionable conduct or undue influence?

Unconscionable conduct is:

  • a special disadvantage between the parties
  • ‘a strong emotional dependence or attachment’
  • a special disadvantage that ‘seriously affects’ the weaker party’s ability to safeguard their interests

however, it is not sufficient that there is an inequality of bargaining power

Undue influence is

  • where you are deprived of ‘free agency’ when signing the agreement
  • there is something so strong that the influenced party is under the belief that while the document is not what they want, they feel compelled to sign it anyway

The High Court lists undue influence for BFAs as:

  1. the BFA was presented as not subject to negotiation
  2. emotional blackmail – threat to end a marriage, to end an engagement or delay the marriage
  3. the BFA being signed near the day of the marriage
  4. no time for careful thought and reflection
  5. the nature of the parties’ relationship
  6. the relative financial positions of the parties
  7. the independent advice that was received and whether there was time to reflect on that advice

 You need to make sure there is no unfairness or threats.

Q. Cost to set up a Binding Financial Agreement

You need for your pre-nup:

  1. a taxation or family lawyer specialist
  2. an accountant
  3. a financial planner

Your spouse also needs from a separate law firm, accounting house and financial planning practice:

  1. a tax or family law firm specialist
  2. an accountant
  3. a financial planner

That is a total of 6 expensive specialist people from 6 different firms and practices. All of them will want to have input into the agreement. Some will want to engage in lengthy negotiations. This can take many months.

Because of the above, from our experience of doing 100s of BFAs, the cost to set up a BFA normally arranges between $15,000 – $30,000 including GST. This is an estimate of all 6 professionals’ time.

What is the time frame for a cohabitation agreement to be signed?

With six professionals involved in the process the time frame to set up the BFA is about 3 to 6 months. However, the shortest time period we have done one is 4 working days. About a third of BFAs never get signed because the process drags out for so long, or one of the parties lose interest in proceeding. There is a 90% chance the BFA will never get signed if the process is taking longer than 6 months.

Is it better to get the BFA signed before I get married?

That is often not a relevant question. If you are already in a defacto relationship (they start after two years or less) then you are already ‘married’ under the eyes of the State government. Having said that, the earlier you do your Binding Financial Agreement or cohabitation agreement the better.

I am not yet married do I get both a BFA and cohabitation agreement?

Yes, that is often the case. You sign both documents. They are the same document with a small change to the relevant section of the act that applies. There is generally no additional cost for doing both agreements – as they are virtually identical.

Q: My family lawyer tells me it is better to have a family lawyer prepare a BFA, not a taxation lawyer. Also, my family lawyer states that an accountant is not required

The two biggest times to tax plan in your life are at death and divorce/separation.

1. Estate Planning: As to Estate Planning, as an Adjunct Professor, I lecture both the Estate Planning and Superannuation units at a number of universities. I have done so since 1999.
I have 7 degrees, 4 of them are in law including my doctorate. My research was on Estate Planning and succession planning. Estate Planning is my passion, especially given the opportunity to reduce the four defacto death duties: income tax, Capital Gains Tax, transfer duty and the 32% death tax on your superannuation.
I author both of Australia’s leading Estate Planning books: CCH Australian Estate Planning and Thomson Reuters Australian Financial Planning Handbook.
You can build your Estate Planning documents online: https://www.legalconsolidated.com.au/tax-effective-estate-planning-bundle/
The 3-Generation Testamentary Trusts include:
  1. 3-Generation Testamentary Trusts – reduces CGT, income tax & stamp duty
  2. Superannuation Testamentary Trust – reduces the 17% or 32% tax on Super going to adult children
  3. Bankruptcy Trusts – if a beneficiary is bankrupt
  4. Divorce Protection Trust – if a child separates, stops the Family Court from getting your money
  5. Maintenance Trust – where beneficiaries under 18 years of age or unstable

2. Family Law: while there are huge tax concessions in separating they are rarely used. This is because the couple often fight, sadly sometimes the family lawyer fuels the flames. With a BFA, as the parties, are working together a taxation lawyer is well suited to prepare the document.

Why get the accountant involved? Many BFAs are overturned by the Family Court. It is as though family lawyers and the Family Court are angry that the government allows people to make their own decisions about how they want their assets divided. Further, a number of Law Societies have written to their members to say that a BFA is ‘crystal ball gazing’ and lawyers are not trained to do this. This is why we have your accountant sign on to explain and set out your assets. To date, not one of our BFAs has ever been overturned by any Court.

Legal Consolidated Barristers & Solicitors does not do BFAs

Legal Consolidated Barristers & Solicitors does not do BFAs. The information above is purely to help you.

To find an Australian law firm still willing to do BFAs you can telephone your local Law Society (Institute in Victoria) in your home State or Territory.

Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm

Mobile: 0477 796 959
National:    1800 141 612
Email: brett@legalconsolidated.com
Skype: brettkennethdavies
Web: https://www.legalconsolidated.com.au/ ‘prenuptial agreements’, ‘prenups’, defacto agreements and Superannuation Agreements ‘prenuptial agreements’, ‘prenups’, defacto agreements and SuperaAgreements ‘prenuptial agreements’, ‘prenups’, defacto agreements and Superannuation Agreements ‘prenuptial agreements’, ‘prenups’, defacto agreements and Superannuation Agreements

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