Binding financial agreement advantages and disadvantages

What is a Binding Financial Agreement?

A binding financial agreement is a legally enforceable agreement between two parties that sets out what will happen to their finances upon the breakdown of their relationship.

It can include details such as the division of assets and liabilities, maintenance payments, and other financial arrangements.

A Binding Financial Agreement can be entered into at any time before or during marriage.

Advantages and Disadvantages

There are many things to consider when looking at the topic of binding financial agreement advantages and disadvantages.

Overall, it is our opinion that the advantages of a binding financial agreement outweigh the disadvantages. 

Couples who are considering entering into a binding financial agreement should be aware of the advantages and disadvantages of such an arrangement so that they can make an informed decision.

This guide will explain the pros and cons of entering into a binding financial agreement, what it can cover, and the steps involved in making an agreement.

Advantages of a Binding Financial Agreement

 

The advantages of binding financial agreements can be summarised as follows:

  1. A binding financial agreement can serve as a safety net. It may or may not be used.  If it is not used, then there is nothing lost.
  2. The agreement can empower a couple to decide in advance what they would quantify as a fair distribution of their finances.
  3. Discussing these things whilst the relationship is still happy, means the agreement is likely to reflect what both parties would accept is reasonable.
  4. A binding financial agreement can also enable the wealthier partner to confirm that the other party is not in the relationship for materialistic reasons.

A binding financial agreement can be a more cost-effective and simple solution than other options post-separation.

This could include the higher costs of trying to negotiate a settlement or having the Court decide the division of assets and financial resources.

The agreement can also provide clarity and privacy with regard to the division of an inheritance. 

Can a prenup protect your inheritance? Yes, it can. This is another big advantage of a binding financial agreement. Many families may want to ensure that an inheritance is protected from a potential future divorce. 

In some cases, couples may wish to keep the specifics of their financial arrangements to themselves, and a binding financial agreement provides a legal way to do this.

Disadvantages of Binding Financial Agreements

 

There are also disadvantages of entering into a binding financial agreement.

You may find it difficult to bring up the topic of entering into such an agreement with your partner.

Finances are often a hard topic to discuss, and you may not want to come across as money hungry or greedy.

Your partner may fail to see any benefit for themselves, especially if they are the financially weaker party.

The actual agreement may also end up being unfair for one party if not all possible scenarios are accounted for.

The Court will not set aside a BFA simply because it is unfair to one party.

Legal Fees

When looking at the binding financial agreement advantages and disadvantages, you will need to look at the legal fees in drafting the Agreement and the requirement for both parties to retain separate Independent Legal Advice.

There is also no scrutinizing body to consider the terms of BFA, nor is there a registration system to note when a BFA has been entered into.

This can cause a degree of uncertainty for the parties.

If it is of any relief to you, you may take comfort in the fact that the vast majority of binding financial agreements do not get overturned, and they are in fact upheld and followed.

It can also be difficult to alter the agreement in the future, meaning the arrangement may not be suitable for couples whose financial arrangements may change throughout their relationship. Couples need to consider this before entering into any agreement.

Setting Aside Binding Financial Agreements

When analysing the binding financial agreement’s advantages and disadvantages, you will undoubtedly be worried about the potential for a court to set aside the prenup.

The law surrounding binding financial agreements can be complicated and there are always talks about potentially ‘setting aside a binding financial agreement’.

To see the list of criteria that a court will look at to set aside a BFA, check out s90K of the Family Law Act.

Any circumstantial changes relating to children that the Court regards as material, such as well-being, child development, and health are paramount when the Court considers setting aside a BFA.

If the Family Court finds enforcing a BFA may result in hardship for the party looking after the child if the BFA is carried out, the BFA could be set aside or varied to protect the best interests of the child.

For example, should the agreement be upheld if a child becomes disabled or sick requiring expensive medical treatment?

This might be grounds for the Court to set aside the binding financial agreement.

Conclusion

Before entering into a binding financial agreement, couples should carefully consider the advantages and disadvantages of such an arrangement. 

When you weigh it up, if used properly, a binding financial agreement has a lot more advantages then disadvantages. 

It is important to have a thorough understanding of the steps involved in making a binding financial agreement and to seek advice from expert prenup lawyers to ensure the agreement is fair and reasonable.

By understanding the pros and cons of a binding financial agreement, couples can make an informed decision regarding their financial arrangements.