Binding Financial Agreements – legally binding?

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

We prepare BFAs across Australia.

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.

Consider 6 factors to get an enforceable BFA

When we give advice on BFAs we consider 6 factors:

1. was the agreement  offered on a basis that it was not subject to negotiation;
2. the  emotional circumstances in which the agreement was entered, including any explicit or implicit threat to end a marriage or engagement;
3. whether there was any time for careful reflection;
4. the nature of the parties’ relationship;
5. the relative financial positions of the parties; and
6. 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 companies. 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.

As to our costs, we would see the mum and dad together and explain the process and take instructions. (We charge $1,100 per hour for this first meeting.) We provide a list of other law firms for the spouse that we won’t be acting for. We then prepare the first draft of the BFA. The cost is usually $4,400 to this point. That would be our only cost if the solicitor on the other side was happy with what we have put together in the Deed. However, where required, we then charge $1,100 per hour to discuss the BFA with the other 5 professionals.

We only take instructions through your accountant, financial adviser or lawyer. Get them to telephone us. We arrange to meet with you together with your professional advisers. We are a national Australian law firm, so we take instructions from all States of Australia.

Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Taxation Law firm
Head Office: 39 Stirling Highway, Nedlands, WA
Mobile: 0477 796 959
Direct: 08 6389 0400
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 Superannuation Agreements ‘prenuptial agreements’, ‘prenups’, defacto agreements and Superannuation Agreements ‘prenuptial agreements’, ‘prenups’, defacto agreements and Superannuation Agreements

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