Most young couples, whether they are married or de facto, usually open joint bank accounts, share their finances and, when the time comes, jointly buy a home together. That’s what everyone does, right? Well, yes, certainly most couples do. People going into relationships, for the first time, especially when they start living together, are not thinking about what might happen to them financially if that relationship later breaks down.
So, what if the happy couple become unhappy with each other? Well, for a start, Family Law doesn’t usually care whose name the bank accounts or the house is in. It assumes that, if one party is going out to work, earning money, and putting it into the joint account, or the mortgage, then the other is also contributing – by homemaking, raising children or doing full or part time work themselves. In other words, the law sees their contributions to the family as being equal. The High Court of Australia has made this clear in several cases. But that isn’t the case if, say, one party makes a substantial contribution that the other has not been involved in. For example, John had $250,000 when he and Mary started living together, which he inherited from his grandmother – Mary made no contribution to that. John then puts that money towards buying a house. If the relationship breaks down after a couple of years, John will get all, or most of that back. If they stayed together for 10 or 15 years, John would get little, if anything back, especially if Mary had contributed by having and raising their children.
Could our couple, John and Mary, sign an agreement to say what will happen to their finances if their relationship breaks down? Yes, they can. It’s called a Binding Financial Agreement. That can set out whatever they agree is going to happen to their property if they separate. They can either do that before they start living together (called a “Pre-Nuptial”), or after they begin to cohabit. As a Family Court judge once said, “That’s a hell of a way to start a relationship.” He was probably right. These agreements are typically sought by a party who has previously been in a relationship, “got taken to the cleaners” by the other party and wants to protect their assets, or where one party brings assets into the family unit and wants to protect those if they separate – like John in the example above.
Binding Financial Agreements must, as their name says, be agreed by both parties. To ensure that they each understand what they are entering into, the Family Law Act requires that they each receive independent legal advice from a separate lawyer. There are strict rules about how the agreement is drawn up and, to ensure as far as possible that it can’t be challenged in the future, it’s best prepared by one of those lawyers.
Binding Financial agreements (or BFAs) are not scrutinised by the courts, so they can contain pretty much whatever the parties agree to. However, they shouldn’t be too lopsided – by giving one side almost everything and the other almost nothing, or they could be open to challenge in the courts. And if there is a significant change in circumstances in the family – for example if John and Mary have a child, the BFA should be reviewed, to take that into account, as Mary may be entitled to more of the assets if the child is to live primarily with her.
So, while, yes, it’s OK to join your finances together when you start living together, things can get messy if you separate. A BFA, despite what the family Court judge said, is a good form of insurance.
Your friendly, helpful lawyer here at Tonkin Legal Group can help you through these issues, so book an appointment with us today or contact us on (03) 9435 9044.
