After a divorce, spouses must come together to determine how to split their assets. Binding financial agreements are one way to help you do that. But are they right for you? An important factor influencing that decision is the fees of the process.
In this article, we’ll examine the cost of a binding financial agreement. This will help you decide whether it’s right for your circumstances.
Key takeaways
What is a binding financial agreement?
A binding financial agreement (BFA) is a legally binding agreement that sets out how a marital asset pool will be divided after a divorce. The Family Law Act covers these agreements. BFAs can be entered into at any time. Parties can create a BFA before, during or after a relationship ends. The arrangement can cover asset pools of various levels of complexity. BFAs are crucial to the health of each party’s financial future.
Requirements for a Binding Financial Agreements
Binding financial agreement must meet certain criteria in the Family Law Act to be considered legally binding.
Voluntariness
Both parties must enter the agreement voluntarily. There cannot be any duress, undue influence or coercion. Each spouse must also get independent legal advice from a family lawyer before entering the agreement.
Full Financial Disclosure
Both parties must disclose their full financial position. This means providing information on asset, liabilities and other financial resources you can access. This is important because it allows each party and lawyer to understand the asset pool accurately.
Certification of Independent Legal Advice
Both spouses must also receive advice independently from a qualified binding financial agreement lawyer before entering the agreement. This legal representation will cover how the agreement will affect the party’s rights and interests. Once the lawyer has advised them of the agreement’s merits, they will issue a certificate confirming their client received the advice.
The binding financial agreement cost
The cost of binding financial agreements depends on many variables. Legal fees can amount to anywhere from $3000 to $10,000 on average. Many firms offer a fixed fee for organising a binding financial agreement. This broad range of expenses reflects the many factors at play. So, what determines the cost of a BFA?
Agreement complexity
Some asset pools are extremely complex and require specialised knowledge to divide properly.
Valuation Challenges
Business interests are often part of property settlements. These interests can be difficult to value. Hiring a professional with specialist knowledge, such as a forensic accountant, is generally necessary.
They’ll examine the business’s cash flow, market conditions and financial statements. Think about a business’s goodwill. While abstract, goodwill can carry a lot of value. This will all add considerable cost to the binding financial agreement. A comprehensive valuation report can cost $2000 or more.
Superannuation
Superannuation interests need to be valued accurately before they’re included in financial arrangements. Superannuation splitting laws govern how super interests are divided in property matters.
The first step is to submit a Form 6 Declaration to the superannuation trustee. This proves that the applicant has a right to the information. This is accompanied by a Superannuation Information Request Form. The information request often comes with a fee of roughly $170.
Organising information on super interests can be time-consuming and add to the cost of a BFA.
Unique and Rare Assets
Settlements can also face challenges from unique items like art pieces, collectibles, vintage cars, etc. Valuing these items can be difficult for various reasons.
Their market value can often be subjective. Two experts may give a different value for the same asset. If these items form part of the property pool, lawyers will work with specialist appraisers to determine their market value.
A valuation specialist’s services are often expensive due to the specific nature of their expertise. Be careful about how the valuer manages their fee structure. Some valuers might set their fee based on a percentage of the asset’s value. This is a conflict of interest. Fees should be fixed or at an hourly rate.
This procedure is often complex and expensive. The cost is often based on the number of assets being valued. An hourly rate can be set at around $200.
Cryptocurrencies
Cryptocurrencies have exploded in popularity. The total market capitalisation of all cryptocurrencies is over $3 trillion. As a result, they’re popping up more and more in financial agreement.
However, they can be complicated and expensive. The value of cryptocurrencies changes quickly. It’s important to consider what point in time you value the cryptocurrency. However, assigning a fair dollar value to you and the other party is tricky.
Tracking down cryptocurrencies is also a problem. Cryptocurrencies are decentralised. There’s no authority the Court can subpoena to get information about them.
Complex Ownership Structures
Some assets may be held within complex ownership structures. This includes family trusts, partnerships, or corporate entities. Understanding each party’s ownership interests and entitlement involves different areas of law. These include corporate, tax, and trust law.
Disclosure requirements
Satisfying disclosure requirements during a separation incurs varying legal costs depending on what’s involved.
Gathering Financial Information
Each party must accurately disclose their finances during a separation. Gathering this information can be time-consuming, especially if the parties have complex financial portfolios or assets across various accounts or jurisdictions. Disclosure during a separation can also involve other professionals, such as accountants and valuation experts, adding to the complexity and cost of the procedure.
Negotiations and Revisions
Full financial disclosure often leads to negotiations about the treatment of assets, particularly when one partner disputes the division. Disagreements may require multiple rounds of negotiation, especially during the early stages of a separation or the breakdown of a relationship. This procedure can significantly increase legal fees and administrative costs, with the usual cost depending on the complexity of the case and the willingness of both parties to cooperate.
Verification and valuation
A family lawyer may need to verify financial information, including obtaining tax returns, bank statements, and other documentation from both parties. This process can help protect assets and ensure transparency but may be time-consuming, potentially leading to additional costs. Discussing these requirements during the initial appointment can provide clarity on what information is needed and how to address any challenges involving the other party.
You may also need specialist valuers for unique or complex financial instruments.
Managing expenses
A BFA’s expenses can get out of hand quickly. But parties can manage the expense.
Clear Communication
Effective communication helps avoid unnecessary disputes. By discussing your goals, finances, and potential financial arrangements upfront, you can streamline the drafting process and minimise the need for extensive negotiations later. Opting for a fixed fee service can also provide clarity and control over costs, ensuring a smoother and more efficient resolution.
Define Objectives and Priorities
Define and prioritise the objectives the BFA should cover, including critical assets and liabilities you want included in the agreement. This focus ensures negotiations target the most vital issues, simplifying the process. Opting for a fixed-fee service can further streamline the process by providing clarity on costs from the outset.
Choose the Right Lawyer
Hire a family lawyer who has experience drafting BFAs. Their practical approach to the agreement will keep costs down. Look for a lawyer who offers transparent fee structures. Many lawyers offer fixed fees for BFAs. Other qualities may include:
Negotiation skills
A lawyer with effective negotiation skills can help parties reach an agreement faster, potentially saving considerable expense. Opting for a fixed fee service can further control costs by providing transparency from the start. While there may still be reviews of the agreement, a skilled lawyer will focus negotiations on actionable solutions, ensuring efficiency and value.
Professional collaboration
Experienced lawyers
Consider Alternative Dispute Resolution
Disputes can arise during negotiations, particularly when discussing a separation agreement or financial support. Consider alternative methods for resolving conflicts, such as mediation. Mediation is typically more efficient and cost-effective than litigation, and it avoids the stress of attending court. Approaching dispute resolution with a focus on collaboration and clear objectives ensures a smoother process and helps achieve the best possible outcome.
Be flexible
You won’t get far without a willingness to compromise. Both parties should consider their interests while working toward a suitable outcome. Be open to creative solutions, such as compromising on the division of other assets to secure something of sentimental value. Ensuring all financial documents are disclosed can build trust during negotiations and support fair decision-making. Additionally, keeping asset protection in mind allows for a balanced agreement that safeguards both parties’ interests.
Interests over positions
Focus on your shared goals and the bigger picture. The agreement isn’t an opportunity to retaliate against your former partner. Taking hard-line positions to keep specific assets or other objectives can be counterproductive. Instead, prioritise what’s in the best interests of both parties.
In most cases, financial agreements don’t need to be a zero-sum game; with transparency about financial resources and independent legal advice, you can create a fair arrangement. Aim for a win-win outcome that benefits both parties and fosters a positive resolution.
Focus on the future
Taking negotiations as a time to rehash past conflicts isn’t helpful. Focus on what each party needs to achieve a healthy financial future. Practical solutions defuse emotions and frame the negotiations around a mutually beneficial outcome while addressing critical matters such as protecting assets, navigating court proceedings, and ensuring fair property division.
Approaching disputes in this way helps to streamline negotiations and keep costs down.
Conclusion
BFAs are flexible. Parties can enter into this legally binding contract at any time, including during or after a relationship breakdown. However, they can be costly. Complex asset pools may require valuation experts, involvement of family court, and drawn-out negotiations to ensure assets are protected effectively.
Good communication and an experienced family lawyer can keep binding financial agreement costs down. You can then draft an effective agreement. If you want to seek legal advice, contact our office today for a free consultation.
