How to Use a Binding Financial Agreement to Safeguard Business Assets

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Relevant For:

Business owners, entrepreneurs, and individuals in relationships looking to safeguard their business and personal assets.

Key Points:

Binding Financial Agreements (BFAs) help protect assets during relationship breakdowns.
BFAs apply to both married and de facto couples.
They cover current and future assets, including business assets and debts.
BFAs must comply with strict legal requirements to be valid.
Early planning and full disclosure are crucial to prevent challenges.
Engaging a solicitor with expertise in business and family law is essential.

Full Article:

Business owners face the constant challenge of protecting their hard-earned assets. Whether you’re launching a startup or managing an established business, safeguarding your assets is crucial. One effective tool in this regard, particularly during relationship breakdowns, is a Binding Financial Agreement (BFA), often known as a ‘prenuptial agreement’.

Understanding Asset Protection and Structuring

Asset protection involves implementing strategies to shield your assets from risks such as debts, legal proceedings, or property settlements due to family law issues. Proper structuring of your business and personal affairs can significantly mitigate these risks.

In Australia, the Family Law Act 1975 (Cth) allows couples to enter into a Binding Financial Agreement (BFA). This legally binding contract outlines the division of assets and liabilities in the event of a relationship breakdown. While commonly associated with marriage, BFAs are also applicable to de facto couples and can be entered into before, during, or after a relationship.

The Power of Binding Financial Agreements

A BFA allows couples to proactively determine the distribution of their assets in case of separation, helping them avoid lengthy and costly legal battles. Without such an agreement, couples would need to negotiate consent orders or litigate in court.

Assets covered by a BFA can include personal and business assets, both current and future, such as an inheritance or a large payment from a business sale. Debts can also be addressed in a BFA. However, parenting matters or child maintenance cannot be included and require separate legal advice.

Protecting Business Assets

For business owners, a BFA is a critical tool for protecting business assets. A well-drafted BFA can safeguard both personal and business assets by:

Clearly defining which assets are separate or excluded property, ensuring the business remains unaffected by a relationship breakdown.
Stipulating the distribution of included assets, such as transferring business-related assets to one party.
Assigning responsibility for any relevant debts.

When dealing with business assets in a BFA, key considerations include:

Accurate identification and description of business structures and assets, particularly if multiple companies and trusts are involved.
Agreeing on the value of business assets, which may require an independent valuer.
Provision for future changes in the business structure or planned sales.
Management of debt and any personal funds required to cover business debts.

It is crucial to engage a solicitor experienced in business structures and family law property settlements to handle BFAs involving business assets.

Requirements of a Binding Financial Agreement

BFAs are complex legal documents that must strictly comply with legislative requirements to be valid and enforceable. The agreement must be in writing, refer to the correct section of the Family Law Act, be signed by both parties, and include certificates of independent legal advice.

Can a Binding Financial Agreement be Challenged?

BFAs can be challenged on several grounds, including non-disclosure of assets, failure to meet statutory requirements, dishonest conduct, improper use, defects in the agreement, and significant changes in circumstances. Full disclosure of assets and liabilities is essential to prevent challenges.

Benefits of Early Planning

While it’s never too late to implement asset protection strategies, early planning is the most effective approach. Establishing a BFA before entering a relationship or marriage can proactively protect your assets and minimise future conflicts. However, even for those already in a relationship, creating a BFA can still provide significant asset protection.