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What is a binding financial agreement?
A Binding Financial Agreement (“BFA”) is a private contract. It is also known as a pre-nuptial agreement, post-nuptial agreement, cohabitation agreement, separation agreement or divorce agreement.
A BFA is a document (or series of documents) that govern your property interests at the end of a marriage or a de facto relationship. This includes same-sex couples, and both de facto and married couples.
A BFA is a way to contract out of the property rules of the Family Law Act 1975 (FLA). As such, a couple can use a BFA to set out how their assets and liabilities will be divided if their relationship breaks down.
A BFA may establish the distribution of property, debts, spousal maintenance and other financial matters.
A BFA can be a practical and effective way to safeguard your financial interests in case your relationship breaks down. But what makes BFAs contractually binding and can they be overturned by a judge? Read the important facts about binding financial agreements below.
What should a binding financial agreement include?
A Binding Financial Agreement will specify how the parties will divide their asset pool in the event that the relationship fails. These agreements deal with property and financial resources, and are generally broken down into clauses that set out:
- The financial settlement (i.e. property settlement, including division of superannuation entitlements);
- The financial support (maintenance) to be provided by one spouse to the other;
- The agreed financial arrangements for the children; and
- Any incidental issues.
A Binding Financial Agreement can address practical financial issues that are specific to the couple, such as the need to:
- Protect existing assets or likely inheritances;
- Ensure that children of previous relationships inherit;
- Preserve family farms or other businesses for future generations; and
- Provide more weight to the contribution of a higher income earner.
When can a BFA be entered into?
Many people assume that you can only enter into a BFA before a marriage. Actually, a couple can sign a BFA at any point before or during a relationship (either marriage or de facto), and even after the breakdown of the relationship.
Protecting your wealth using a BFA
A properly prepared BFA provides certainty for both parties in a relationship. You may wish to consider a BFA if:
- you have more money, property or assets than your partner at the beginning of your relationship;
- you may, at a later stage, be entitled to an inheritance or large gift;
- you operate a family business or manage an investment;
- you want to avoid even the possibility of going to court later by agreeing to a property division up front;
- you are forming a new relationship and you have children you want to protect financially.
Advantages of a BFA
While we all hope for ‘happily ever after’, relationships do sometimes break down. Given this reality, and the prospect of lengthy court battles and the associated emotional and financial stress, many couples consider entering into a Binding Financial Agreement.
A Binding Financial Agreement allows a couple to agree in advance on an acceptable division of their assets. It can be a cost-effective way to protect the assets you have worked hard to earn, and of safeguarding your future income or inheritance. Preparing a Binding Financial Agreement can make sure you (and your children) are financially secure if the relationship ends.
A correctly executed Binding Financial Agreement can provide a degree of certainty to a couple. In the unhappy event that a relationship does not work out, the couple can at least avoid unnecessary arguments, and drawn out and expensive legal proceedings.
Disadvantages of a BFA
However, it’s important to bear in mind that BFAs are complex contracts and require specialised family law advice. A lawyer must have the necessary knowledge and experience to execute the agreement in a way that is actually legally binding. Whatever you do, you should not choose a lawyer to draft or advise you on a BFA based on how much they charge. You must take care to select a lawyer who specialises in Family Law and has experience in drafting BFAs. Unfortunately, it does happen that a BFA is set aside by a court because of poor drafting or inaccurate advice.
In addition, a BFA must be highly tailored to the individual parties. As such, the lawyer must provide strategic advice while drafting and/or advising on the document.
Unified Lawyers have extensive experience advising on all aspects of BFAs, including drafting documents to vary the terms of an existing BFA. It is essential to get a BFA right the first time, and Unified Lawyers has the knowledge and experience to give you peace of mind.
What makes a BFA binding?
Although a BFA is a way of avoiding the rules of the Family Law Act, the BFA itself is only enforceable if it complies with certain requirements of the Act.
In summary, a financial agreement is binding on the parties to the agreement if, and only if:
- The agreement is in writing and signed by both parties of their own free will; and
- The parties are contemplating entering a marriage or de facto relationship, are in a de facto relationship or marriage, have separated or divorced; and
- It includes a statement from each party acknowledging that they obtained independent legal advice on their rights; and
- A legal practitioner gave their client a signed statement confirming the provision of legal advice; and
- A copy of the legal practitioner’s statement is given to the other party; and
- The agreement has not been terminated and has not been set aside by a court; and
- Includes a separation declaration (if relevant).
The Family Law Act states that each party to a BFA must receive independent legal advice to make sure they understand their rights and the terms of the agreement. The legal advisors summarise their legal advice in a signed certificate that is attached to the Agreement.
A binding financial agreement should be reviewed every couple of years or after the birth of a child or other significant event.
When will a BFA not be binding?
The short answer is that a BFA is binding, as long as it has been set up correctly. The courts can void or set aside any agreement that fails to meet the required conditions. It is most common for an agreement to be set aside if the parties failed to obtain independent legal advice or drew up the agreement themselves without legal assistance.
Can a binding financial agreement be overturned?
A binding financial agreement can be overturned by the parties themselves, or through a court order. The couple can create a new binding financial agreement that explicitly states that the previous agreement is overturned. This is the only way to update an existing agreement.
Alternatively, the couple can choose to terminate the BFA altogether. As with the original BFA, a termination agreement is only binding and enforceable under certain conditions. Specifically, both parties must sign the termination agreement after they have received independent legal advice as to their rights and the impact of terminating the agreement.
Can the Federal Circuit and Family Court of Australia set aside a BFA?
The Court can overturn a BFA if it is not properly drafted and executed. The Court can also set aside the agreement on the basis that one of the parties:
- Acted fraudulently (such as one of the parties failing to disclose an asset or relevant information);
- Acted unconscionably given the circumstances;
- Intended to defraud a creditor;
- Included a superannuation interest that is “unsplittable” or operating under a “payment flag”;
- Signed the BFA under duress (for example, one party threatens not to go through with the wedding on the day of the ceremony unless the other party signs the agreement); or
- There has been a change in circumstances that makes the BFA impractical or inequitable (for instance, a child has been born or adopted by the couple) and the court recognises that a party to the agreement will suffer hardship if the Court does not overturn the BFA.
When a BFA is set aside, the couple can negotiate a property settlement privately, or either party can apply to the court for a financial order.
BFA Frequently Asked Questions
Can you do your own binding financial agreement?
You may be tempted to try and create your own binding financial agreement without going to the expense of contacting a lawyer. You might even have found a DIY kit that makes you feel confident in your ability to handle the matter by yourself. Unfortunately, a financial agreement will not be honoured in court unless it is prepared according to certain rules and policies.
A qualified lawyer need to prepare your BFA so that it is legally valid and covers all the relevant issues. The terms and clauses that need to be included will probably be unfamiliar.
Of course, you may be able to limit the costs associated with entering into a BFA by doing as much prep work as possible before going to see a lawyer. Your lawyer will find it easier to prepare the document if you prepare ahead of time a comprehensive list of your assets and your instructions. This will help to minimise the time and expense involved in drafting the agreement.
Separate legal practitioners must then review the agreement and represent each party’s interests in the matter. Each party must confirm that they provided legal advice on the document and sign to that effect.
Who pays for a binding financial agreement?
While each party must have independent legal advice, there is no legal prescription about who should pay for a binding financial agreement. In practice, one party will usually arrange to have the BFA drafted, and may even pay the legal fees for both parties. However, it is important that there is no suggestion that the independent legal advice was not impartial.
Why are BFAs so expensive?
Preparing a Binding Financial Agreement is a specialist, time consuming task. A lawyer who prepares a Binding Financial Agreement will have to consider a number of factors when drafting the document, including:
- The parties’ occupations and future capacity to earn an income;
- Their superannuation entitlements;
- Their current assets, including chattels, vehicles, shares, furniture, and valuables;
- The condition and current value of these assets;
- Details of each party’s liabilities including any loans, mortgages and debts;
- The date when the parties commenced their relationship;
- The date when the parties began to cohabitate;
- Whether or not either party has been married previously;
- Whether there are any other family law financial agreements which may apply;
- The number of children and their ages.
Each lawyer must provide their client with a summary of the law as it applies to their circumstances. This means that the lawyer must advice both on the meaning of the terms of the proposed BFA and what the position would be under the Family Law Act.
Is it worth getting a Binding Financial Agreement?
If your relationship ends, you will almost certainly need to negotiate a property settlement with your former partner. Because many relationships end on less than friendly terms, the parties often have to resort to a stressful, expensive and time-consuming court proceeding in order to settle their disagreements. From a purely financial point of view, having a Binding Financial Agreement in place will save a couple from spending tens of thousands of dollars on legal fees and court costs (and potentially much more). It is often worth getting a BFA to reduce uncertainty and increase the potential for a couple to have an amicable separation.
Does a BFA need to go to court?
A legally Binding Financial Agreement is an enforceable contract. The only reason why you would need to go to court would be if one of the parties is refusing to comply with the terms, or if you are seeking to overturn the BFA altogether.
Here For You
It may seem pessimistic and even unromantic to prepare a binding financial agreement while you are in a happy relationship. Actually, it is just a practical way of protecting yourself and your partner in the hopes that you will never have to rely on the agreement.
Unified Lawyers are here for you if you need any assistance with a Binding Financial Agreement.
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