Picture this, Sally is a 32 year old school teacher and while she is not wealthy, she worked hard and saved the deposit for her own house at the age of 26. Sally has been committed to paying off her mortgage ever since. On Sally’s 30th birthday she met Greg, a 34 year old builder, and fell in love. Recently Greg asked Sally to marry him. She is excited, in love and cannot wait to start her life with Greg, but there is one small problem. Greg has spent his life travelling the world, he has no assets to his name and he has his bags packed to move in to Sally’s house.
The scenario above depicts the increasing trend of marrying later in life, which comes hand in hand with the issue of one person having accumulated more financial assets than the other. This is where the issue of a Binding Financial Agreement (also known as a “pre-nuptial agreement”) becomes a hot topic. A Binding Financial Agreement is an agreement between a de facto or married couple that sets out how property and finances will be dealt with should their relationship break down. It allows couples to have control and certainty as to their financial futures and to protect their individual assets.
If you are in a similar situation to Sally, it is likely that suggesting a Binding Financial Agreement will be met with protests of “why do we need one?” and “don’t you trust me?” Unfortunately, more often than not when a couple separates what was “I wouldn’t take what’s yours if we were to separate” quickly becomes “I am going to take you for everything you are worth”. Without a Binding Financial Agreement, should Sally and Greg’s relationship break down, Greg will be able to apply to the Family Law Courts for a division of assets. Sally’s house, or part of its value, will be viewed by the Family Law Courts as divisible between Sally and Greg.
The greatest advantage of Binding Financial Agreements is that they exclude the jurisdiction of the Family Law Courts. This means that parties to a Binding Financial Agreement cannot make an application to the Family Law Courts to have the Courts determine how their finances and assets are to be divided, but instead their assets will be treated in the way the parties agreed at the time they made the Binding Financial Agreement. Therefore, a Binding Financial Agreement is a relatively inexpensive way for you to protect your assets and avoid arguments and court proceedings following separation. Of course, as with everything in life, there are exceptions and your personal circumstances will determine if any of the exceptions apply to you.
Ousting the jurisdiction of the Family Law Courts is a serious matter and as such, there are very strict requirements that must be met to ensure a Binding Financial Agreement is actually binding and enforceable. It is rarely financially advantageous for a person with fewer assets to enter into a Binding Financial Agreement that seeks to protect the person with greater assets. It is for this very reason that the person with fewer assets may try to challenge the validity of the Binding Financial Agreement if the relationship breaks down. The person with fewer assets may try to have the Binding Financial Agreement set aside in the belief that they will be better off financially if it the Family Law Courts divided the assets in accordance with the Family Law Act.
In the recent case of Sullivan & Sullivan  FamCA 752 (“Sullivan”) the Wife challenged the validity of a Binding Financial Agreement, which she had signed at the Husband’s insistence, because once they had separated she did not wish to be bound by it.
The Wife in Sullivan signed the Binding Financial Agreement before she and the Husband were married and, crucially, the Husband signed the Binding Financial Agreement after they were married. The Family Court found that the Binding Financial Agreement between the parties was not binding because, among other things, the Family Law Act requires that both parties to a pre-marriage Binding Financial Agreement be “contemplating marriage” and the Husband and Wife were already married at the time the Husband signed. The Binding Financial Agreement could not be rectified to be a during marriage Binding Financial Agreement because the Family Law Act requires that the parties be “parties to a marriage” and the Husband and Wife were not married at the time the Wife signed.
It is imperative, particularly for the person with greater assets, to ensure that the Binding Financial Agreement will withstand challenges to its validity and enforceability. If you are going to make a Binding Financial Agreement, you need to ensure that the agreement complies with the requirements in the Family Law Act.
Binding Financial Agreements can be made before, during or after a de facto relationship or marriage. You should consider making a Binding Financial Agreement if you:
- wish to avoid costly court proceedings;
- are marrying later in life;
- have been married previously;
- have children from a previous relationship;
- have suffered financial hardship as a result of a the break down of a past relationship;
- are in a blended family or about to become part of a blended family; or
- if you have significant assets prior to entering into a relationship.
This article provides information that is general in nature and not a substitute for legal advice. Please contact Rudstein Kron Lawyers if you wish to obtain legal advice for your personal situation.