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Binding financial agreements are our version of “prenups”, they can assist with asset protection and safeguard your family’s wealth from family law proceedings and separations.
How Bindings Financial Agreements (“prenups”) can help your client protect their assets
21 March 2023
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4 minute read
What is a Binding Financial Agreement?
A Binding Financial Agreement (BFA), otherwise known as a prenuptial agreement, is a legally enforceable agreement between two parties that sets out what happens to their finances upon the breakdown of the relationship.
Most divorce lawyers would advise that BFAs are a useful tool for protecting assets, particularly in high net worth relationships.
As an accountant, understanding how BFAs work and their scope will be useful when advising your clients on the best ways to protect their assets. It is important to note that BFAs are complex legal documents, and individuals need to receive independent legal advice on the effects and implications of these agreements.
What benefit do BFA offer?
Binding Financial agreements are designed for the peace of mind and security of individuals and couples, and to provide a “safety net” in the event that the relationship breaks down.
Parties can enter into BFAs at any stage in the relationship and they help to keep the individual’s assets separate and out of reach from the other party. BFAs are particularly useful in the following circumstances:
1. To protect inheritances:
When a relationship breaks down, any expected inheritance will generally be considered as forming part of the property pool. Understanding the relationship between inheritance and divorce can be quite tricky – so BFAs are a useful tool to protect inheritances and provide clarity and privacy with regard to the division of an inheritance. If either party has a recently deceased family member, or expects to receive an inheritance soon, then this inheritance may be considered in the division of assets.
2. To protect pre-relationship assets:
Parties should consider a binding financial agreement when they have significantly more money or assets at the beginning of a relationship. For instance, a party may have a house or a family business that they need to preserve and want to avoid having a high net worth divorce case.
In these instances, BFAs need to be carefully drafted to ensure that they consider any structures in place, such as family trusts, companies and self-managed superfunds. In these circumstances, accountants are instrumental to ensuring that agreements are drafted correctly, and account for any tax implications such as capital gains tax or stamp duty.
3. To ensure parties are in the relationship for the right reasons:
BFAs serve another purpose beyond the protection of assets in the event of the breakdown of the relationship. For wealthier individuals, discussing the division of assets with romantic interest and partners can help to clarify each party’s intentions and expectations from the outset of the relationship.
Additionally, discussing the division of assets whilst the relationship is still happy also means that the agreement reached will reflect what both parties view as fair and reasonable in the circumstances, rather than leaving it to the discretion of the Court. This can save time and money by avoiding costly legal disputes and conflicts between the parties.
Limitations of a BFA:
The disadvantages of a BFA are that it may be required to updated to reflect the parties changing circumstances across the relationship – for instance, if the parties entered into a BFA at the start of the relationship, but subsequently marry and have children, then their financial circumstances are likely to have changed significantly.
In this case, the BFA should be updated to reflect the changing circumstances and to ensure that it remains legally binding and enforceable.
As an accountant, you can advise clients on the way that BFAs can assist them to protect their assets throughout a relationship. If you have a client who is considering whether a BFA is appropriate in their circumstances, then feel free to reach out to the team at Justice Family Lawyers, who have a strong team of prenup lawyers in Sydney and property settlement lawyers.
An average BFA costs around $5,000 and goes up depending on the complexity of the agreement.
Author: Hayder Shkara is the principal of Justice Family Lawyers and Melbourne Family Lawyers. His team has vast experience in family law, including financial and property settlements, divorce, child custody matters, wills and estate, consent orders and binding financial agreements.
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