Binding Financial Agreement

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Binding Financial Agreement

A Brief Introduction About the Binding Financial Agreement

A binding financial agreement also sometimes known as a “pre-nuptial agreement” or a “post-nuptial agreement” is an agreement entered into by a couple that lays out how some or all of the assets of the couple will be divided in case the relationship between the couple comes to an end. The agreement may also lay down guidelines regarding spousal maintenance.

Such an agreement may be signed at any point in the relationship, such as – (a) Before the relationship or marriage, (b) During the relationship or marriage, (c) After separation, or (d) After a divorce in the case of married couples. However, it is preferable that such an agreement should be created before marriage or before the couple starts living together. In such cases, the matter can be discussed calmly and rationally by both parties, and they can come to a consensus about the division of their various assets.

Entering into such an agreement after separation or after divorce might be quite a difficult process as the parties might not be in the right frame of mind to negotiate the various clauses of the agreement.

Who Takes the Binding Financial Agreement- People Involved

The people involved in a binding financial agreement are the couple who is either married, about to get married, living together, or about to enter into a live-in relationship. It is recommended that such an agreement should be entered into before the couple gets married or before they enter into a live-in relationship.

Purpose of the Binding Financial Agreement

The purpose of a binding financial agreement is to protect the assets of the couple and to avoid a dispute if the relationship comes to an end. This is a very practical approach and can prove extremely helpful as the parties can avoid getting into this dispute if their relationship ends. Such an agreement may be considered beneficial if one of the parties in the relationship is considerably wealthier than the other at the beginning of the relationship.

Such an agreement may also be needed when one of the parties operates a family business that needs to be preserved, or when one of the parties has children who need to be protected financially. They can lay down that the assets of the parties will be kept separate from each other if they so desire. Certain wealthy people enter into this agreement to ensure that the other person is not in a relationship with them just for their money.

If such an agreement is in place, it avoids the couple from having to go to court for the division of the property. The purpose of the agreement is to simplify the process of the division of assets of the couple in a predetermined manner.

Contents of the Binding Financial Agreement- Inclusions

The agreement should talk about the following issues and try to lay down every aspect as clearly as possible:

  • There should be a clause to details whether the salaries of the couple will be combined or kept separate from each other.
  • The agreement should also detail how the couple will own any property or assets that they acquire in the future whether such property shall be owned jointly by the couple or according to the percentage of funds provided by each of them.
  • Apart from the above, the agreement should also talk about how the property and assets that the couple already details be dealt with in the future.
  • There also must be a clause in the agreement to discuss how liabilities that the couple acquires in the future will be dealt with.
  • If one of them acquires a liability in the future, the agreement should detail how that will be dealt with.
  • A very important clause that needs to be present is whether any spousal maintenance will be payable if the relationship ends.
  • If the couple has a joint bank account, the agreement should mention which party owns such money and who has the right over it.
  • In some cases, the agreement might also have a clause to state which party will be liable to pay the rent or mortgage or whether it will be payable jointly.
  • Some agreements also have a clause to detail which party will get possession of any pets that the couple has or may acquire in the future.
  • A binding financial agreement shall not include any provisions with regard to the children that the couple has or may have in the future. It cannot discuss which parent will get custody of the child or how much time each parent will spend with the child.

How to Draft the Binding Financial Agreement

The following are the steps to follow while drafting a binding financial agreement:

  • The parties should have a discussion about the various aspects that they wish to lay down in the agreement.
  • Matters such as the distribution of property, spousal maintenance must be discussed clearly so that they can be laid down in the agreement so as to avoid any confusion or dispute in the future.
  • The agreement should be drafted in plain simple language, which brings out the intentions of the party.
  • Both parties must receive independent legal advice from a lawyer, and the agreement must be certified by a lawyer. A copy of such a certificate must be provided to both parties.
  • It is necessary that both parties make full disclosure about their financial circumstances. If this is not done, this might affect the binding nature of the agreement, and the agreement may be set aside by the court.

Negotiation Strategy

  • The basic strategy is to ensure the rights and interests of both the parties are adequately protected
  • Each party must ensure that his assets are protected under the agreement while at the same time ensuring that the agreement is balanced and fair

Benefits and Drawbacks the Binding Financial Agreement

The following are the benefits and drawbacks of having a binding financial agreement:


  • Such an agreement benefits the person who is in a superior financial position as compared to the other party. Such a party can safeguard his financial interest and his assets through this agreement.
  • It is easier and cost-effective to make decisions about financial matters when the parties are in a happy relationship rather than during a separation. It is a practical decision that can be taken by the couple to take into account all the situations possible and to account for them.  If the decision to enter into such an agreement is taken by the parties when they are in a happy relationship, the negotiation process will be easy, and the agreement will end up being reasonable and fair to both parties.
  • The settlement of property after separation is an easy and simple affair if such an agreement is in place.
  • Any asset that is of sentimental value to one party can be kept out of the general pool of assets if the parties so desire.
  • Such an agreement can provide security for the children either of the parties has from a previous marriage.
  • If such an agreement is not in place, a dispute about the division of property or other assets can end up in court and turn into a legal mess.


  • A possible drawback of this agreement is that if all possible situations and contingencies are not laid down in the agreement, it might turn out to be tilted in favor of one of the parties or unfair to the other.
  • Another drawback is that drafting of the agreement might prove a little expensive due to the legal fees of two separate lawyers.

What Happens in Case of Violation

A binding financial agreement is a legal document and must be honored by both parties to the agreement. It can be treated as any other private contract, and the non-breaching can institute a case against the breaching party. If either party violates this agreement, it can result in legal penalties.  For example, the court may order the party to hand over property that belongs to the other party, if this is a sufficient remedy. If there is any further violation of the agreement, it can even result in penalties such as fines or compensations.

However, for such an agreement to be binding, the agreement must be in writing. It must be signed by both parties, both parties must obtain independent legal advice before they sign the agreement, and the lawyer must certify the agreement. If these requirements are not met, the agreement may be set aside by the court.

In conclusion, this is an agreement that is designed to protect the financial interests of a couple. If drafted well, it can protect the party, who is a financially superior position. It can also provide an easy and stress-free way of dealing with the division of property if the relationship between the parties comes to an end. While drafting and negotiating the multiple clauses of this agreement might seem like a difficult process to the parties, it is a much better option than going to court for division of assets(1).

This agreement ensures that all the important matters, such as the assets of each party, maintenance to be paid if any, and possession of pets are taken into consideration and dealt with in a manner that is acceptable and fair to both parties.