Mid Mountains Legal Blog

BINDING FINANCIAL AGREEMENTS

Anthony Steel

What is a BFA?

Also known as a cohabitation agreement, pre-nuptial agreement, post-nuptial agreement, divorce agreement or separation agreement, a Binding Financial Agreement (BFA) is a document (or series of documents) governing your property interests at the end of a marriage or a de facto relationship.

A BFA is a private contract. It can be a practical and effective way to safeguard your financial interests in case your relationship breaks down. It allows a couple (including same-sex couples, and both de facto and married couples) to agree in advance on an acceptable division of their assets.

A BFA is a way to contract out of the property rules of the Family Law Act 1975 (the Act). A BFA specifies how a couple will divide their asset pool in the event that their relationship fails. It can also set out the payment of debts, spousal maintenance and other financial matters.

What should a BFA include?

BFAs generally include clauses that set out:

  1. The financial settlement (i.e. property settlement, including division of superannuation entitlements);
  2. Any financial support (maintenance) to be provided by one spouse to the other;
  3. Agreed financial arrangements for the children; and
  4. Any incidental issues.

A Binding Financial Agreement can address practical financial issues that are specific to the couple, such as the need to:

  1. Provide more weight to the contribution of a higher income earner;
  2. Preserve family farms or other businesses for future generations;
  3. Ensure that children of previous relationships inherit; and
  4. Protect existing assets or likely inheritances.

When can a BFA be entered into?

A couple can sign a BFA at any point before or during a relationship (either marriage or de facto), or 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:

  1. you have more money, property or assets than your partner at the beginning of your relationship;
  2. you want to avoid even the possibility of going to court later by agreeing to a property division up front;
  3. you operate a family business or manage an investment;
  4. you are forming a new relationship and you have children you want to protect financially; or
  5. you may, at a later stage, be entitled to an inheritance or large gift.

Advantages of a BFA

While we all hope for ‘happily ever after’, relationships do sometimes break down. Many couples consider entering into a BFA to avoid drawn out and expensive legal proceedings.

A BFA can be a cost-effective way to protect the assets you have worked hard to earn, and of safeguarding your future income or inheritance. A BFA can ensure you (and your children) are financially secure in the unhappy event that a relationship does not work out.

A BFA can provide a degree of certainty to a couple. If a relationship ends, the couple can avoid unnecessary arguments, prolonged court battles, and the associated emotional and financial stress.

Disadvantages of a BFA

BFAs are complex contracts and require specialised family law advice. The FCFCOA can set aside a BFA on the grounds of poor drafting or inaccurate advice. A BFA must be tailored to the individual parties by a lawyer who provides strategic advice while drafting the document. A lawyer must have the necessary knowledge and experience to execute the BFA in a way that is legally binding.

Rather than choosing a lawyer to draft or advise you on a BFA based on how much they charge, your selection of a lawyer should be based on their experience in Family Law.

What makes a BFA binding?

Although a BFA is a way of avoiding the rules of the Act, it is enforceable only if it complies with the requirements of the Act.

A BFA is binding on the parties if:

  1. The agreement is in writing and signed by both parties of their own free will; and
  2. A copy of the legal practitioner’s statement is given to the other party; and
  3. It includes a statement from each party acknowledging that they obtained independent legal advice on their rights; and
  4. The agreement has not been terminated and has not been set aside by a court; and
  5. The parties are contemplating entering a marriage or de facto relationship, are in a de facto relationship or marriage, have separated or divorced; and
  6. A legal practitioner gave their client a signed statement confirming the provision of legal advice; and
  7. It includes a separation declaration (if relevant).

The Act states that each party to a BFA must receive independent legal advice to ensure that they understand their rights and the terms of the agreement. The legal advisors’ legal advice is summarised in a signed certificate attached to the BFA.

A BFA should be reviewed every couple of years or after the birth of a child or other significant event.

When is a BFA not binding?

A BFA is binding only if it complies with the requirements of the Act. The courts can void or set aside any agreement that fails to meet the required conditions. The most common reasons for a BFA being set aside are when a party fails to obtain independent legal advice or when a party drafts a BFA themselves without legal assistance.

Can a binding financial agreement be overturned?

A BFA can be overturned by the parties themselves, or through a court order. The couple can create a new BFA that explicitly overturns the previous BFA. This is the only way to update an existing BFA.

Alternatively, the couple can choose to terminate the BFA altogether. A termination agreement is only binding and enforceable if both parties sign the agreement after having received independent legal advice as to their rights and the impact of terminating the agreement.

Can the Court set aside a BFA?

The Federal Circuit and Family Court of Australia (the FCFCOA) can overturn a BFA if it is not properly drafted and executed. A BFA can also be set aside on the grounds that:

  1. A party acted fraudulently (such as one of the parties failing to disclose an asset or relevant information);
  2. A party 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);
  3. A party acted unconscionably given the circumstances;
  4. A party Intended to defraud a creditor;
  5. The BFA included a superannuation interest that is “unsplittable” or operating under a “payment flag”; or
  6. There has been a change in circumstances that makes the BFA impractical or inequitable (e.g. a child has been born or adopted by the couple) and the FCFCOA recognises that a party to the BFA will suffer hardship if the FCFCOA 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.

Can I do my own BFA?

It is tempting to avoid the expense of engaging a lawyer by trying to create your own BFA. Unfortunately, a BFA will not be honoured in court unless it is prepared according to certain rules and policies.

A qualified lawyer should prepare your BFA so that it is legally valid, covering all the relevant issues and including all the necessary terms and clauses.

You can limit the costs associated with entering into a BFA by doing as much prep work as possible before going to see a lawyer. If you prepare in advance a comprehensive list of your assets and your instructions, your lawyer will find it easier to prepare the BFA, which will help to minimise the time and expense involved in drafting the BFA.

Separate legal practitioners must then review the agreement and represent each party’s interests in the matter. Each party’s lawyer must sign a declaration that they provided legal advice on the BFA.

Who pays for a BFA?

While each party must have independent legal advice, there is no legal prescription about who should pay for a BFA. 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 BFA is a specialist, time consuming task. A lawyer who prepares a BFA will have to consider a number of factors when drafting the document, including:

  1. The date the parties commenced their relationship;
  2. The date the parties began to cohabitate;
  3. Details of each party’s liabilities (incl. all loans, mortgages and debts);
  4. The condition and current value of the parties’ assets;
  5. Whether or not either party has been married previously;
  6. Their current assets (incl. property, vehicles, shares, furniture, and valuables);
  7. Their superannuation entitlements;
  8. Their occupations and future capacity to earn an income;
  9. Whether there are any other family law financial agreements which may apply; and
  10. 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. They must advise both on the meaning of the terms of the proposed BFA and what the position would be under the Act.

Is it worth getting a BFA?

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 BFA 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 BFA 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 one of you is seeking to overturn the BFA altogether.

What now?

It may seem pessimistic and even unromantic to prepare a binding financial agreement while you are in a happy relationship. However, it is a practical way of protecting yourself and your partner in the hopes that you will never have to rely on the agreement.

Contact Mid Mountains Legal if you need any assistance with a BFA.

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