It’s a sobering statistic – more than 32% of Australian marriages will end in divorce.
No one ever goes into a romantic relationship thinking that it won’t work out. In the first flush of love and hormones, it can be hard to keep your feet on the ground, be practical and think – what happens if this relationship goes wrong? That’s why a binding financial agreement is smart. If you’re lucky, you’ll never need it. But if your relationship ends up on the rocks, you’ll be protected from disputes at a time when you’re most vulnerable.
What’s a binding financial agreement?
Generally, you might know this as a prenuptial agreement, or a prenup. In the legal world, these are known as binding financial agreements, and they set out:
• how you and your partner agree to divide up property or finances, including superannuation, if the marriage or de facto relationship breaks down
• ongoing maintenance of either you or your partner
• anything else that relates to these areas.
Who is covered by a binding financial agreement?
These agreements cover married, de facto and same-sex couples.
The Family Law Act covers various types of relationships under different sub-sections, although for de facto couples, the Act only provides for financial agreements under all states, territories, and Norfolk Island – except Western Australia, where de facto couples are covered by the Family Court Act 1997. Keep in mind that the law has a strict definition of a de facto relationship, for example, how long you’ve been together or if you’ve had a child together.
Is a binding financial agreement right for you?
Since you contributed to the development of the agreement, a binding financial agreement gives you confidence that you’ll be covered if something goes wrong. It means you’ve made the decisions, not a third party through the legal system. Importantly, you save time and money because you don’t have to go to court, which can be an expensive exercise – not to mention an emotional drain at a difficult time. It also means that you may be able to retain an ongoing relationship, which is particularly important if children are involved, and to offset any future disputes between you. And it’s an important step to helping you continue to move forward and create a different life for yourself.
Remember that although these agreements appear to be popular among famous or wealthy couples (before the inevitable divorce!), a binding financial agreement is a smart way to protect yourself no matter how much wealth you share between you.
When is the right time to enter into a binding financial agreement?
Technically, you can make a binding financial agreement before or during a marriage or de facto relationship, or after you’re divorced. However, if you make an agreement and then marry, that agreement will no longer be binding. It’s considered the best practice to have two separate agreements – one that applies while you’re in a de facto relationship, and one to cover property and maintenance obligations once you’re married.
However, to maximise the benefits of binding financial agreements, it’s important to enter into one at a time when you’re in a positive space about your relationship – without being influenced by wanting to give too much or being forced to fight if things go wrong. And for this reason, it’s critical to speak to a family law specialist who can guide you with your interests in mind, and explain the impact, advantages, and disadvantages of your specific agreement.
What do you need to enter into a binding financial agreement?
A binding financial agreement is only legally binding if two conditions have been met. Both you and your partner must receive independent legal and financial advice before signing, and then you both must sign the agreement. Binding financial agreements aren’t approved by or registered in court. The court, however, can dissolve an agreement under certain circumstances, including if you or your partner didn’t accurately disclose all property, the agreement was incomplete or not specific enough, or if the agreement was signed under duress.
A binding financial agreement can protect you at one of the most critical points in your life – a divorce or the breakdown of a relationship. If you want professional advice about a binding financial agreement, contact us and talk to one of our law experts.