For a business owner, a binding financial agreement is one of the most direct ways to protect a business and other significant assets if a relationship ends. Also known as a prenuptial or postnuptial agreement, it sets out in advance how property will be dealt with on separation, which gives both partners certainty and removes much of the uncertainty that a discretionary settlement can bring. Done properly, it is a planning tool, not a sign of distrust.
What a binding financial agreement can cover
A binding financial agreement can be made before, during or after a marriage or a de facto relationship. It can set out how property, spousal maintenance and superannuation are dealt with if the relationship ends, and it can quarantine specific assets such as a business or an inheritance. It cannot be used to decide child support or parenting arrangements, which are always assessed separately on the circumstances at the time.
Why business owners use them
Owners typically use an agreement to protect a business or significant assets brought into a relationship, to quarantine the growth of a business built during it, or to protect assets for children from an earlier relationship. Rather than leaving the division to a discretionary process later, an agreement records what the parties intend now, while the relationship is sound and both people can consider it calmly. For a business with other owners or investors, it can also give them comfort that a personal separation will not destabilise the company.
What makes an agreement binding
To be valid, a binding financial agreement must meet strict requirements. Both parties must receive independent legal advice before signing, the agreement must be in writing and signed by both, each party’s lawyer must certify that advice was given, both parties must disclose their finances fully, and the agreement must not have been made under duress or undue influence. Cutting corners on any of these is what most often leads to an agreement being challenged.
Lessons from the courts
The courts can set aside an agreement that does not meet the requirements, or that was signed under pressure. Cases such as Thorne v Kennedy show how important genuine independent advice and the absence of undue influence are, particularly where an agreement is put forward close to a wedding. A well-drafted agreement, entered into with time and proper advice on both sides, is far more likely to hold up when it is needed.
Keeping it current
An agreement should be reviewed as circumstances change, for example when a business grows, assets are acquired, or the relationship moves from de facto to marriage. Keeping it current helps make sure it still reflects your intentions and remains effective.
Getting the drafting right
The value of an agreement lies in the drafting. It must describe the assets and the intended outcome clearly, deal with future events such as the sale or growth of the business, and be tailored to how your entities are structured rather than pulled from a template. A vague or generic agreement is far easier to challenge, and the cost of drafting it properly is small against the value of the business it protects. Both parties should also allow enough time before any deadline, such as a wedding date, so the advice is unhurried and the agreement cannot later be said to have been signed under pressure.
As the largest team of specialist family lawyers in WA, Leach Legal drafts and reviews binding financial agreements that protect business owners and their assets. Book a consultation to discuss whether an agreement suits your circumstances.
