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Whether getting married or establishing a de facto relationship, it is always wise to protect your assets by creating a binding financial agreement.
In some countries, this would be known as a prenuptial agreement.
The Family Law Act 1975 allows you to create a binding financial agreement to manage your assets effectively. This agreement outlines how financial resources, assets, and property are distributed if the relationship ends. It can be created before the marriage or de facto relationship or during it. In some cases, it can be completed after the fact.
However, for the agreement to become legally binding, both parties must agree to the terms and sign the document. Additionally, both parties will have to seek independent legal advice before they sign, and that legal practitioner has to provide a signed statement of evidence that they did so.
A court can terminate a binding financial agreement or set it aside. This is generally when fraud is alleged, or the agreement is voidable or unenforceable. It can also be set aside if there was a change in circumstances following the agreement. It can also be set aside if there are issues with superannuation terms.
A binding financial agreement covers financial resources, property, and financial maintenance. If the relationship fails, the agreement clearly outlines how the property pool will be divided.
While many couples do not want to think about their love ending, creating a financially binding agreement means everything is cleared away while things are good. As a result, you can avoid a contentious breakup and arguing over assets when you are both emotional and angry.
It covers the property settlement, which includes superannuation information and entitlements, as well as whether one party has to provide the other with maintenance support. It can clear up unexpected issues as well.
The most common issues during the process are protecting inheritances and assets, including ensuring that any children from previous relationships still receive an inheritance. It is also used to protect family businesses for future generations. A binding financial agreement helps avoid the common financial disputes that arise when a relationship ends.
When you sit down with a lawyer, they will need open, honest communication around assets, occupations and future earning capacity, superannuation entitlements, debts, loans, mortgages, children, and any other information that may apply.
You will be asked to provide a list of assets and property you are entering the relationship with and any you acquired during the relationship. You will have to provide the market value for these. The plan will set a detailed plan for how the assets are split and distributed following a breakup. So, both parties must be fully open with their assets and debts.
A legally protected binding financial agreement will protect both parties and give each a certainty that if the relationship does end, they have a clear plan to follow regarding asset division. The assets or property they entered the relationship with will remain safe, and both parties can walk away as cleanly as possible.
In a binding financial agreement context, a security deposit demand letter can be crucial in protecting assets. Let's say you're renting out a property and require a security deposit from your tenant to cover any damages or unpaid rent. Using a demand letter, you can clearly state the terms of the security deposit, including the amount and the conditions for its return.
This letter can then be included in your Binding Financial Agreement, providing legal protection and ensuring the security deposit terms are clear and enforceable. In a dispute, the demand letter can serve as evidence of the agreement between you and your tenant, helping protect your assets and financial interests.
It does not matter how certain you are of your relationship; it is wise to be sure of your financial security by sitting down with your partner to create a binding financial agreement. It provides both parties equal protection and, more importantly, makes the breakup a cleaner split.
The breakdown of a relationship can be a difficult, emotionally charged time, and a binding financial agreement can make the financial side of things easier to navigate. Using a legal expert to draw up your binding financial agreement is critical. You should follow the proper steps to ensure your binding financial agreement is, in fact, binding.
You want to avoid taking shortcuts that may allow the court to set it aside when the time comes. It will reduce your stress levels, reduce the cost of separation, and you will avoid costly and lengthy court delays as well. Binding financial agreements should be as natural as creating a will to ensure your estate is distributed correctly. Do not leave it to chance.
Luke Fitzpatrick has been published in Forbes, Yahoo! News and Influencive. He is also a guest lecturer at the University of Sydney, lecturing in Cross-Cultural Management and the Pre-MBA Program. You can connect with him on LinkedIn.
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