Podcast Episode 15: Are BFAs worth the paper they are written on?

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Jessica Hamilton (JH): Hello and welcome to the Family Five podcast with Ivy Law Group, where we will tackle the tough family law issues in the time it takes you to drink your coffee. I’m Jessica Hamilton, I’m the Marketing Manager for Ivy Law Group, and I’m joined by my boss, Shane Neagle, who is the Director of Ivy Law Group and the family lawyer extraordinaire. In this podcast, we will take a 5 in 5 approach, five questions in five minutes. Our aim is to keep the podcast light, easy to understand and to give you some valuable information to take away with you.

JH: And we’re back everybody. Hello Shane. How are you today?

Shane Neagle (SN): Yeah. I’m….

*laughs*

SN: Yeah, every day is a great day, Jessica.

JH: So, today we’re talking about binding financial agreements, sometimes referred to as a prenup, especially in all of the American television shows *laughs*. For everyone out there, what exactly is a binding financial agreement?

SN: In a nutshell? And the acronym being a BFA. It’s a private contract between two people, including same sex partners, that formalises how a couple’s property, assets, superannuation and liabilities will be divided in the event of a breakdown of a marriage or a de facto relationship.

They can be made before, which were always problematic because they do often get overturned. They can be made during a relationship. For example, you’re ten years in and say, this is what I want to happen if we break up in ten years; and it can be made after, so after a relationship ends and that’s how we negotiate the end of our relationship and assets.

Once parties enter into a BFA, Jessica, they give up their rights under the Family Law Act for the Family Court to determine any or all property and financial matters should their relationship end or there should be any other disputes arising (within reason).

JH: So BFA’s are not for everyone. In what circumstances would someone need one and in what circumstances don’t they need one?

SN: Someone who just owns a boat, a car, is renting and say is in a 20 year relationship, has superannuation, etc, well you wouldn’t spend the money that you need to to have a binding financial agreement. When it mostly comes into play is that, for example, there are people coming into relationships who are trust fund beneficiaries where they can sometimes get up to millions and millions of dollars and those people like to protect their position.

JH: So is it true that BFAs are only for the rich?

SN: Look, it’s kind of along those lines in the way that if you came in with a million dollars today and you know you’re going to have children with the other person and the relationship goes on to 15, 20 years, a BFA where there’s children isn’t worth the piece of paper it’s written on, really. (I often have) young people coming to me and they’re saying, I have $300,000 equity in a property and the other person has nothing. I say to them, Look, the expense of entering into it (a BFA) when you’re going to have children, could you possibly rethink that? Because I just don’t think it’s worth it at the moment.

JH: And what about if you’re at work and your boss comes in with a scratchie and you know, you win $1 million off your scratchie, then what happens, Shane?

SN: Well, *laughs* you would probably resign because most people these days wouldn’t go, Oh, Shane, you bought the scratchie for me like I do for you every other day and say, Oh, Shane, you know, here’s some for you and your family. Those kind of windfalls that come during a relationship, that goes back to the same principles we’re always talking about.

JH: It’s a good thing I only won $10 then *laughs* Alright, so you have mentioned that sometimes BFAs are not worth the paper that they’re written on, and that’s because they can be challenged and/or overturned. Do you want to just talk about how they can be challenged and overturned?

SN: I need to put in a caveat on when I said there, you know, about how they can be torn up easily. It’s mainly just when people are going to have children in the future. The way that a court can set them aside – and that’s why they need to be carefully drafted and properly executed.

The main ways is where there was fraud or (the agreement was) entered into under duress. (It can be if) a party failed to disclose assets or information relevant to the agreement. We had one case where the other person had $99 million that they didn’t disclose. Well, off we go. Does that make sense? So you can’t use deception in these cases. (Another way is if) it was entered into to defeat or defraud a creditor or with reckless disregard to the interests of a creditor. So someone’s owed 100 grand and they had this BFA, where they move the assets over to one person to avoid the creditor. Well they’ll get it set aside.

This was the key one that we were talking about earlier on,  where there’s been significant changes to either or both of the parties circumstances, which makes it impractical to carry out the agreement. And that could be the person ended up in complete poverty. Since the making of the agreement, there’s been a change in circumstances relating to a child and which would (this is important) result in hardship for the child or their carer. If the agreement is not set aside, I can’t tell you how important that is. Where often, the main breadwinner could be bringing in $1 million a year and they’ve got this prenuptial for example, and the other person’s got nothing and hasn’t worked for 20 years.

JH: Okay. So a discussion came up today actually about the cost of a BFA. Can you talk about that?

SN: I don’t mind talking about that issue. Our firm has always been about access to justice. A lot of law firms aren’t doing binding financial agreements anymore because they get sued because of these issues that arose in Thornton v Kennedy where a week before the marriage, she entered an agreement (BFA) and she was told it was the worst agreement of its kind. She signed it and the High Court said, yeah, look, I’m sorry, we’re setting it aside. What happens is, lawyers then get sued. They have to rely on their insurance.

When we’re doing these agreements, you’d normally do at least 40 hours of work. Our firm’s insisting that if we do a prenuptial, that the client agrees that we get a barrister involved to have a second set of eyes over the agreement. They (BFAs) need to be prepared by a lawyer and signed off by a lawyer because each party needs to have an independent lawyer acting. And so it’s not unusual to be between $7,500 dollars to about $14,000 once you include a barrister to get one done through our firm.

JH: Alright. Thanks for that, Shane. So time for a joke, I guess.

SN: No worries, Jessica. How many lawyer jokes are there? Only three. The rest are true stories.

JH: Oh, dear. Thanks, Shane. Bye bye.

SN: Thanks a lot, Jessica.

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JH: Thanks for tuning in, and don’t forget to save us to your favorites wherever you listen to your podcast so that you don’t miss an episode. It’s important to note that the contents of this podcast are intended as a general guide to the subject matter. And if you are looking for specific advice about your individual circumstances, then we would recommend getting in touch with one of our friendly family lawyers.