Pre nuptials and Binding Financial Agreements Risks
Binding Financial Agreements (“BFA”) are used as a genuine means of protecting assets, when entering into or living in a marriage or domestic relationship (including same sex relationships) and often used as an alternative to Consent Orders in the Family Court, for recording the end of a marriage or relationship.
Essentially a BFA is a contract between two parties. Not all BFAs are necessarily “just and equitable” and for this reason require independent legal advice.
Due to the increasing risks, however, it is now increasingly prudent to have court orders instead of using financial agreements.
Financial Agreements before, or during the marriage or relationship
A Financial Agreement can “quarantine” assets from the pool available for distribution at a future time if a relationship breaks down.
More and more people are challenging their prenuptial and financial agreements and an increasing number of decisions are causing lawyers and clients to question the benefits of BFAs.
They still however, remain popular as a more simple private contract and contracting out of spousal maintenance. Lawyers are concerned that they no longer offer the protection to justify the costs of drafting them, and the costs are just getting larger.
Overall, it is best to consider that any Financial Agreement that departs from the principles set out in the Family Law Act can potentially be set aside. Remember that the Family Court and the Federal Circuit Court does also have the power to alter and adjust property between separated spouses and ignore the legal structure of Trusts and Family Companies.
So What Do You Do About Asset Protection?
It is essential to consider asset protection in wider terms. Consider:
- Obtaining financial advice including the taxation implications of the terms of any proposed Agreement or Orders;
- Stamp duty exemptions apply to transfers of land effected pursuant to the terms of a financial agreement or Orders;
- CGT rollover relief may apply on breakdown a relationship pursuant to a financial agreement or Orders (as long as the terms of the agreement do not in any way benefit any third party
Most importantly, consider making a Will that complements any Financial Agreement
Trusts and Family companies are also a financial and succession planning tool, but not necessarily the ultimate protection when marriage or relationship separation occurs.
As far as the protection of your assets in the event of marriage or relationship breakdown goes, it is always best to be guided by a Family Lawyer’s advice.
Your lawyer should take account of the entitlements of each party at the end of a marriage or relationship, not just at the beginning, and must pay particular attention to the range of entitlements under the Act.
So What is Separation? Separation – Voluntary and Involuntary Separation, the High Court of Australia and the Stanford case
Stanford – Not “just and equitable” to separate assets of elderly married couples just because they involuntarily separate when one spouse forced to move into nursing home.
The preferred approach for many years is to identify and value assets, resources and liabilities, assess contributions, consider s.75(2) factors and then make a just and equitable order.
Since the recent High Court case of Stanford to determine a just and equitable resolution, the Court now begins with identifying the existing legal and equitable interests of the parties in the property (as if between people who are not in a relationship).
Also, the bare fact of separation, especially if involuntary, does not give the Family Court power to consider property settlement between parties. In the Stanford case, an elderly couple in different nursing homes, because of age and infirmary (not by choice), may not be a separation.
The High Court ruled, that there may be some circumstances when married parties separate involuntarily and a property settlement order can be made, eg. “if one party’s unmet needs cannot be met by a maintenance order it may well warrant the conclusion that its just and equitable to make a property settlement order.”
Clients need to make sure all their claims and entitlements are best safeguarded in the most cost effective and beneficial way.
The above is general information only and does not constitute legal advice.