Farms are often held by the same family for multiple generations. As the younger generation grows up and becomes involved in the farming business, they also enter relationships and begin to have their own families. The elephant in the room is often the potential impact a subsequent relationship breakdown may have on the family farming business.
In this two-part series, we discuss how a Binding Financial Agreement (BFA) can be an effective tool for protecting the family farming business in the event of a relationship breakdown.
What is a BFA?
A BFA is a written agreement between a couple which details how their property and finances are to be divided in the event of a relationship breakdown.
A BFA is made in accordance with the Family Law Act but outside of the Family Court. This means that by entering into a BFA, a couple “contract out” of the right they would otherwise have to apply to the Family Court for property orders in relation to the matters contained in the BFA should their relationship end.
When can you enter into a BFA?
A couple can enter into a BFA before, during or after a marriage or de facto relationship. In the context of protecting a family farming business, we are generally referring to BFAs entered into before or during a marriage or de facto relationship, rather than after a couple have separated.
Typically, where either party is involved in a family business or farming enterprise, the BFA may “quarantine” these family business assets from division or alteration by the Family Court in the event of a breakdown in the relationship.
What can be covered by a BFA?
- The assets, liabilities and superannuation held by the couple at the commencement of the relationship. This includes any interest in a family business, including an interest in a trust.
- How those assets, liabilities and superannuation will be distributed if the couple separate. For example, the husband’s interest in the family business will be retained by the husband, and the wife’s share portfolio will be retained by the wife.
- How joint property acquired by the couple during the relationship will be dealt with. For example, if the couple purchase a house in town, the house might be retained by the wife or divided equally between the parties.
- It may provide for a “superannuation split”, i.e. where the funds held in one person’s superannuation fund are transferred into the other person’s superannuation fund.
- It may provide for the payment of spousal maintenance to support a spouse in recognition of the loss of an earning capacity while living on the farm.
What are some of the advantages of a BFA?
- Provides certainty, financial security and peace of mind for the couple.
- Protects the farming assets for the wider family and future generations, thereby assisting with estate and succession planning.
- Avoids the emotional and financial cost of litigation, should the couple later separate.
- Provides CGT and stamp duty relief for transactions entered into pursuant to the BFA.
Look out for Part 2 of our series where we discuss the steps to ensure a BFA is legally binding.
If you are interested in a BFA or need more information on its uses, please contact a member of our Family Law team at Fox and Thomas.