One of the main issues that all couples struggle with is related to money. Money issues are particularly challenging when couples have differing levels of income and asset pools when they enter into a relationship.
I recently spoke with Sydney solicitor Bhavesh Mistry about binding financial agreements and how they can help couples manage money issues that may arise in their relationship.
This was an informative interview with Bhavesh discussing:
- What is a binding financial agreement?
- The benefits of a binding financial agreement for couples
- When a binding financial agreement is helpful or useful for a couple
- How a binding financial agreement stands up in a court of law if challenged
- Situations where a binding financial agreement is not the way to go for a couple
- A case study that demonstrates the successful application of a binding financial agreement
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Clinton Power: Hello, this is Clinton Power from Clinton Power and Associates. It’s my pleasure today to be speaking with Bhavesh Mistry. He is the Solicitor Director at MistryFallahi Lawyers and Business Advisors. He practices in the area of family law.
I wanted to speak with Bhavesh because he really enjoys assisting clients in the areas of parenting and property matters, Binding Financial Agreements, dispute resolution, mediation, and call litigation. I certainly know from my experience of working with so many couples that money issues are one of the top issues that are constantly brought up within couples and the difficulties that couples experience.
Welcome, Bhavesh. It’s great to speak to you today. Tell us a bit how you became a lawyer interested in working with families and relationships.
Bhavesh Mistry: Firstly, thank you, Clinton, for your time today. Just a little bit about me, I’ve always been interested in working with families and individuals in terms of assisting them through difficult times. When people go through a separation, it’s also very difficult with money, where they’re living, children, how that all is going to play out going through simple[ph] things like a divorce.
So what I like to do is assist those clients to be able to make them go through those difficult times, giving the right strategy, the right direction, the right advice so they can achieve the desired outcome whether it’s through mediation or whether it’s through courses of—I enjoy doing that on a daily basis.
Clinton: One of the things I wanted to speak to you today, specifically, was about binding financial agreements because I think for many couples that I’ve worked with, issues of money and particularly when there are disparate levels of income can become major issues in a relationship. Can you explain to us what is a “Binding Financial Agreement”?
Bhavesh: A binding financial agreement is like a contract in simple terms. It’s done under the Family Law Act. It allows couples whether they’re in a de facto relationship in the beginning or whether they’re a married couple or whether they’re being in a relationship for 20 plus years.
It allows those people to enter into a formal contract whereby they can set out what’s going to happen in relation to part or full of their property pool in the event of a separation or irreparable breakdown of a marriage. That’s in a nutshell, what a binding financial agreement is.
The binding financial agreement is upheld by the court, so it gives you that assurance and certainty that in the event something was to happen, that document that you signed being a contract will be upheld by the Family Court.
Clinton: What are the benefits of having a binding financial agreement or couples deciding to get on that route?
Bhavesh: There are many underlying benefits of entering into a binding financial agreement. It will always depend on where each party is at. So I guess the underlying benefit would be to ensure minimisation of costs and also to give each party certainty and to protect the assets that they have built up at the time of entering into the relationship.
So for example, you have a couple that is young, have built up an asset over the time, for example, they may have a property asset, superannuation, they may want to enter into a binding financial agreement, so a contract whereby it would set out that in the next two or four years, for example, if we were to have a separation, I’ll disclose that I’ve got this asset, you’ll disclose that you have this asset.
We’re both happy to have an agreement whereby in the event we will separate I will keep my asset, you will keep your asset, and anything moving forward we could have an agreement add to that. Just to add on that, Clinton, that these agreements are advised by lawyers on each side, so each party has an independent legal advice when entering into these agreements.
Clinton: Okay, that’s interesting. So it’s not that you work with a couple together to create one.
Bhavesh: No, basically what happens is that we normally have someone that comes along and says we’re entering into a relationship and it’s getting to a stage where we want to put something in writing and have something to protect ourselves. I can work with one party and come up to an agreement where they think they have an agreement and then I can shoot off the draft and the other partner then can go off and get some independent legal advice on that document and then any kind of changes that need to be done or variations can be done from there.
Clinton: I’m guessing that’s an ethical practice to make sure that each partner has good and sound advice.
Bhavesh: Correct, exactly. You wouldn’t want to have a situation where a solicitor is advising both parties that you definitely can’t uphold the agreement on that one.
Clinton: In your experience, Bhavesh, when do you say that it is really useful for couples to have a binding financial agreement?
Bhavesh: It’s useful where there are asset pools obviously. But on further what I’ve said before, I’ll add to that, I find that binding financial agreements are very, very crucial especially when you have a situation when one party has already been in a relationship and has built up some forms of assets, may have gone through a separation, and also may have children from a previous relationship.
That person there would definitely want to ensure that they have a binding financial agreement when entering into a new relationship to ensure that their assets and the children that they may have from that first relationship are protected because of those asset pools. That’s when I found it to be useful. But I do really find it useful where there are parties that are young and are new to having a long-term relationship and have assets.
Just to ensure that they don’t have to go through the extensive process, are going through a court system in the event of a breakdown that may happen within a few years down the track.
Clinton: Is this different from a pre-nuptial agreement or is it along the same lines?
Bhavesh: A pre-nuptial agreement is something that is along the same line, but I will qualify that and say a pre-nuptial agreement where everybody may know as it is, the Family Court had defined them as binding financial agreement before or during marriage or relationships such as de facto.
Clinton: So a binding financial agreement can be made at any time in the course of a relationship. It doesn’t have to be just before marriage.
Bhavesh: Correct, it could be made during –parties may be married for years- parties may be in a relationship, de facto relationship for years. It can be done at the beginning, during, and even at the end. So in the event that you are to separate, at that point, you can enter into a binding financial agreement and that would set out what’s going to happen and you don’t need to worry about going through the full court system and litigation which a lot of people avoid.
Clinton: I’m curious to know, Bhavesh, in terms of a binding financial agreement, you have said that it’s of course legally binding, it stands up in the court of law, but if you have an acrimonious separation, perhaps one partner is very litigious, how solid is it if it is challenged very aggressively?
Bhavesh: Yes, in this regard, if someone wants to set aside a binding financial agreement, the criteria which they may have to prove would be one where there would be fraud at the time of entering into the agreement or at the time both parties or one party vow to disclose their full financial assets, because you need full financial disclosure.
So if for example at the time they enter into the agreement someone had a million-dollar property or a yacht or a boat or even some form of bank accounts with a substantial amount of money that was not disclosed at the time, that may have ground in relation to bringing or setting aside the agreement.
However, I will say that if it is binding, it is upheld by the court as long as the requirements are met independent legal advice would have to be given on that documents and both parties know about the financial disclose both parties. But if someone wants to bring that application, Clinton, then they will need to go to seek advice and they may need to seek advice from a counsel because bringing such application is very expensive and the requirements to meet for the court to consider setting aside are quite high.
Clinton: That’s probably a good segue to my next question. How expensive and complex is it to set up a binding financial agreement? Because I imagine that’s the first thing many people are concern about when getting the services of a lawyer is how long and costly is this going to be and complex.
Bhavesh: It doesn’t need to be complex. But in saying that as a lawyer, we have to make sure we tick all the boxes. I guess you can look at it this way. I guess I approach it the fact that I see it from the other side. I get a situation where the party’s having to enter into a binding financial agreement that hasn’t actually turn their mind to a situation as to what they want to happen when if something was to go wrong. And they may be in a relationship for years- they may have a child.
At that point, one party may have already commenced legal proceedings up to some form of preliminary mediation that is not being truthful. As soon as that application is filed then you know you’ll have to respond and file something in court. Your legal fee will start to rack up anywhere between $10,000-$40,000 depending on your matter. And it could go on for years since the court system obviously is dealing with many cases.
So with that context in mind, Clinton, to do a binding financial agreement is a couple of $1,000. It does seem expensive, to some people it is. It can be reduced depending on how complex and depending on the situation and depending on what the parties want.
But I guess I’m trying to create a context for everybody, in the fact that if you don’t have a binding financial agreement, it could be much more expensive.
Clinton: That’s a great point you’re making and coming from the other end, I’m sure you’ve seen some horrific cases where—and I certainly have as well—where people have spent up to $100,000 in the courts just trying to reach a financial settlement. So this is in a way I think I guess you’re saying it could be considered insurance for the future.
Bhavesh: Correct, it is some form of insurance to ensure that at least you have a middle ground between the party of an understanding of where and what’s going to happen, where if you didn’t have that in writing, you’re basically starting from scratch. And at that point, communication between the parties may not be the best.
Clinton: Are there times when you think of binding financial agreement is not necessary for a couple or perhaps you would advise not to have one?
Bhavesh: It’s difficult to say when you wouldn’t advise. I guess if a party is in a relationship and they have assets and they’re worried about what’s going to happen to those assets in the event something was to break down, then it’s difficult to say when it would be required. I guess when you’re starting off in a relationship, if you haven’t hit the 2-year mark in terms of before we get married and you haven’t contributed towards significant financial assets between you both and probably for given that large for example depending on personal circumstances, they may not be necessary.
But they think they’re getting serious investing money and you want to protect your assets or yourself, your children, and the family for example, I can’t see any situation where a lawyer would not be advising to for the parties to consider the options of entering into a binding financial agreement.
Clinton: I wonder if you can share a case study that may demonstrate how this has worked successfully for a couple.
Bhavesh: Yeah, we’ve had situations whereby parties have—I think the best scenario would be where you have a couple who’s come from a relationship breakdown and has children. That’s typical situation where someone entering into a relationship who wants to protect the assets, what they put up, and they have gone through the courses and they may know the importance of it.
So it’s about being full and frank at the start of a relationship which also as you may know, Clinton, helps with relationship to be healthy. A good scenario would be a case study would be in that situation. The parties enter into that, the wife for example may have assets in her name and she’s trying to protect that for herself and her children.
She entered into a new relationship with someone, and after a year or so it doesn’t actually work out, at least she and her partner would know that in the event of a breakdown they could use this agreement. There’s no stamp duty in relation to transfers of property under the binding financial agreement. Things can be done quite quickly for the parties. So I guess a case study like that in that kind of situation I think was a successful outcome.
Clinton: Great. I’m also thinking this important point you’re making about children that I guess if you are perhaps maybe people who are going to second to third or fourth marriages, and if you do have children that you want to ensure the security of their future, I guess financially, that can be compromised if you do happen to separate after a number of years or the partner potentially lose 50% of your income pool.
Bhavesh: Exactly. You work so hard to build up these assets and as the majority of people may also be thinking about the security of their children and I think it’s a responsible thing to think about as to how you can minimise the potential blow out of cost, the potential issue of going to court, and stress that also puts on family and the children as well if in terms of having a binding financial agreement.
Because as you may know if the parties are unable to come to an agreement after separation on money issues that are going to stand in relation to how they’re going to be able to communicate with each other in relation to parenting issues. This sort of situation that I see if the party’s typical husband and wife and no longer trusting each other, not able to speak to each other because they don’t trust each other on property issue, than dealing with where the child goes to school, whether the child sees one parent on the other on what days, sort of flexible in relation to whether the child is going to see medical treatment—the parties are always going to have a situation clashing and it’s not in the best interest of the child in the long run.
Clinton: Great! Well, thank you so much for sharing your information experience and advice with us today. What’s the best way that people viewing this video can get in contact with you if they wanted to find out more about binding financial agreements or any other matters?
Bhavesh: The best way is to give me a call. I’d be more than happy to have a chat with you all the time. You can contact us on 02 8094 1247. And yes, give me a call. I can run through your matter, it’s all confidential I won’t charge you for the chat, because each situation is unique, Clinton. So each party may need different course of action, a different strategy, a different solution, so give me a call have a chat and I can tell you what I can do for you.
Clinton: What’s your website address?
Bhavesh: The website is www.MistryFallahi.Com.Au.
Clinton: Great! Well, thank you for speaking with me today, Bhavesh.
Bhavesh: Thanks, Clinton!
Clinton: Bye for now.
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