Prenuptial agreements, known in Australia as a Binding Financial Agreement (“BFA”), carry a certain stigma. We have all heard the stories of the Hollywood celebrities fighting tooth and nail to protect their fortunes just days before they walk down the aisle.
Contrary to this image, entering a BFA is a responsible choice for those looking to protect their assets and need not be a Hollywood worthy drama.
In 2009, amendments were made to the Family Law Act 1975 (Cth) that extended the BFA provisions to cover de-facto couples as well as same-sex couples.
More and more, the out-dated view of many Australians – that BFAs symbolise an unstable relationship – is being replaced with a more reasonable approach to new relationships that acknowledges the high divorce rate in Australia.
BFAs acknowledge blended family arrangements
In addition, a BFA is structured in such a way that the intricacies that emerge in complex blended family arrangements, such as those couples with children from previous relationships, can be taken into account.
The Family Law Act, in dealing with the question of ‘who is entitled to what’ takes into account the assets each party brings into the relationship, each party’s contributions throughout the term of the relationship, and the future needs of the parties. Nevertheless, all assets held by parties or on behalf will form part of the property pool during the division process, regardless of when they were acquired or by whom. Further, things like bequests and anticipated inheritance may be characterised as the ‘financial resource’ of a party, and form part of the equation.
Estate planning and a well-drafted BFA are suitable undertakings for these types of blended family arrangements.
BFAs can soften the blow
A tumultuous break-up can leave you with some serious emotional scarring, which can make the process of negotiating finances scary and unbearable. You and your partner will barely have had time to contemplate the end of your relationship, let alone manage the division of the property. A BFA will provide some structure and guidance in dealing with the business side of the break-up. Matters like, who will keep the family home, how you or your ex-partner will afford to live elsewhere, and how the investment condo will be divided, are all important considerations and may end up being battled out in the Family Court if proper measures are not in place.
Even the most amicable of separations can lead to moments of anxiety and feelings of fear. The thought of discussing how to permanently end all ties to your ex-partner, financial and otherwise, can be quite daunting. Unfortunately for some, the end of the relationship spells the end of the friendship. At this point, there is a shared concern regarding the specific details of the financial contributions during the term of the relationship.
Having a well-drafted BFA in place can soften the blow and relieve some of the hard feelings between you and your ex-partner. Court proceedings are far less likely with a BFA in place.
BFAs simplify the process of dividing matrimonial assets
Since a BFA details the financial situation of each party, including the property and debt that each brings to the relationship, it can simplify the entire asset-division process upon separation.
Along with any property that each party has purchased independently, a BFA also sets out a method for the division of any property that has been accrued jointly.
BFAs are legally binding
Another important benefit of a BFA is the requirement on both parties to receive independent legal advice, so they know how the Family Law Act will operate in the event of separation before they sign on the dotted line.
The solicitors sign a Certificate of Independent Advice, which affirms that each party understands the pros and cons of entering the BFA. The terms of the agreement take effect when you or your partner, upon separation, sign what’s called a Separation Declaration. This basically reaffirms that both parties are unwilling to live together and unlikely to resolve the conflict, despite their efforts.
BFAs simplify property settlement
A BFA gives you and your partner some assurance as to the settlement of any property. Who will take the house? Will it be sold and divided in equal shares, or will one party keep the home and pay a share to the other?
Obviously, a BFA won’t anticipate all jointly purchased assets that will accumulate once the BFA is entered into. Equally, a BFA won’t foresee the liabilities that may accrue during the relationship. It can, however, provide manageable steps for accomplishing a fair and equitable outcome.
A BFA is akin to good planning. Nowadays, it is no longer a symbol of a relationship that is doomed from the start. On the contrary, couples that use a BFA might find more security and comfort in the certainty that it provides.