There have been several reported matters in the media lately (Grant Hackett being one case particularly) where there appears to have been troubles encountered with the drafting of Binding Financial Agreements. It is concerning to us, that we continue to hear about “cheap” products being pedalled on the market. A Binding Financial Agreement is not a straight forward document. It is not some sort of “commoditised” document that one can download as a precedent and adapt to different relationships to spit out at a cheap rate.
If you want to refer your clients off to someone who does Binding Financial Agreements at a very cheap rate then you risk that client becoming unscrambled and facing greater legal problems in the event of their relationship breakdown in the future.
By its very essence, a Binding Financial Agreement attempts to predict with certainty, uncertain outcomes that may happen in the future as to the division of property in the event of a marital breakdown. At first blush, many of you may think that the Agreement is a simply Agreement that can be commoditised. That is not the case. There are plenty of products out there that attempt to do same but they fail to take into account the many checklists and due diligence that must be undertaken prior to entering into the Agreement and they also fail to have adequate checklists in place in relation to the preparation and compilation of the Agreement. Most of them lack an ongoing monitoring and client care package that should accompany these Agreements.
At Hartley Healy, we have developed very detailed guidelines and procedures and ensure that a proper diagnosis is undertaken before even drafting the Binding Financial Agreement. The Agreement (and if necessary definitions within that Agreement) are adopted to cater for a client’s individual needs and circumstances. Here are some of the issues that we often encounter when preparing Binding Financial Agreements and need to address with clients in order to protect their assets in the future. This is just a snapshot that hopefully shows the complexity that can apply to many of these Agreements.
- Property held within trusts – in the Family Court, a line of authorities have developed to notionally treat the assets of a trust as matrimonial property of both the husband and wife. These factors range from matters concerning legal control of the trustee company and positions of power within the trust to evidence of intent and “real control” as opposed to legal control. They can also include factors that relate to how assets within a trust were accumulated and who made contributions to those assets. When dealing with trust property now and in the future in a Binding Financial Agreement, one has to be very careful as to a number of issues. Those issues can include the following:-
- How is property within a trust defined;
- Does the definition of property (both now and in the future) appropriately cover assets within a trust;
How are positions of power of appointment within a trust dealt with;
- If there are future resettlements of trusts then how does the definition section of the deed deal with that?
- What about the tax consequences with respect to future distributions of income and capital and the accounting for that in any division of property.
The above is just an example of some issues that may need to be dealt with. The complexity arises from the fact that the division of the assets in the future does not arise under the umbrella of the Family Court.
The division of the assets must arise and be dealt with totally within the umbrella of the deed of agreement. In other words, the deed must exhaustively cover all incidents and possibilities as to identification of proprietary interests so that no proprietary interests fall outside of the deed.
If a proprietary interest is not properly anticipated or covered within the drafting of the deed, then that may fall outside of the deed (when the parties separate) and still be liable to be attacked in the Family Court.
In the next newsletter, we will deal with some other issues concerning the due diligence that has to be undertaken to ensure that a Binding Financial Agreement should be entered into in the first place.
We believe that all parties who are entering relationships where there is some wealth should seriously consider a Binding Financial Agreement. This especially applies where one party has substantial property interests and / or the parties are entering into a second relationship.
We offer high quality Binding Financial Agreements that are competitively priced but are certainly not at the cheap end of the range of the inferior products that are available generally in the market.
Our service includes an initial diagnosis and then working with commercial lawyers, advisors and accountants to undertake the drafting in a way in which maximises the client’s prospects of assets being protected at some uncertain point in the future should their relationship fail. Don’t mess with your client’s financial future for the sake of a few thousand dollars.