4 Classes of People that Can Benefit from Binding Financial Agreements
A binding financial agreement (BFA) is a legal agreement that is entered into by two people in a relationship. Prenuptial, separation and divorce agreements are the most popular BFAs, but there are others such as cohabitation and post-nuptial agreements. De facto couples can also enter into BFAs, provided neither person has an outstanding BFA with anyone else.
The BFA states terms for sharing personal and joint wealth in the event that a relationship ends. Having a BFA can reduce the number of disputes that happen upon termination of a relationship, and there are many ways that signatories and other affected parties can benefit from its presence. This article outlines who can benefit from a BFA and how it can be used.
1. Children of re-partnering parents
Parents that are re-partnering are often encouraged to enter into BFAs in order to safeguard assets acquired before the new relationship and those being held in trust for children who are still underage. Should the new relationship break down or the parent die, the new spouse will only be entitled to what was stipulated in the agreement, instead of adhering to state law regarding property division.
2. Spouses of re-partnering parents
A BFA may also protect the interest of a re-partnering parent's spouse by making clear the former's intention as relates to property division. It is not uncommon for children to fight to disinherit their parent's new spouse should their parent die. Such agreements are not only important for people with large amounts of wealth; in fact, anyone considering a new union should consider having a BFA to safeguard interests of all affected parties.
3. Business partners
If you have a business partner who is married or has a de facto souse, you could require them to have a BFA at the beginning of the relationship since a spouse has some claim to their spouse's stake in a partnership. Should the relationship end, the BFA should outline a succession plan among other details. In its absence, business partners may find their business drawn into disputes on property settlement and may be forced to disclose their financial records, financial position and other proprietary information. The results of this may significantly hurt the business.
4. Re-partnering spouses
Finally, re-partnering spouses can protect wealth acquired before the beginning of a subsequent marriage of de facto union using prenuptial agreements. In the absence of such agreements, a re-partnering spouse may have to lose up to half their wealth to the new spouse should their relationship end.
Talk with a lawyer familiar with family law to discuss whether you may need a binding financial agreement.