Binding Financial Agreement (BFA) is the term the Federal Circuit and Family Court of Australia (FCFCOA) uses for Pre-nuptial agreements (pre-nups), Post-nuptial agreements (post-nups); and cohabitation agreements. The Family Law Act 1975 (Cth) allows parties in a marriage or de facto relationship to enter into a BFA to avoid disputes about division of their finances in the event of a relationship breakdown. BFAs alter the normal avenue for division of property and other assets, deviating from the FCFCOA’s normal jurisdiction.
How do they work?
A BFA allows a couple to agree in advance on an acceptable division of assets. When a marriage or de-facto relationship breaks down, a BFA can allow a couple to amicably separate without the need for costly, time-consuming and stressful action in the FCFCOA.
Ensuring that a BFA is properly drafted and executed can provide certainty and prevent the FCFCOA from interfering with the agreed property distribution following the breakdown of a relationship.
When do the parties enter into a BFA?
BFAs can be entered into:
- before the commencement of a marriage or relationship; or
- at any point during the marriage or relationship; or
- after separation or divorce.
How binding is BFA on the FCFCOA?
A BFA is binding if it has been correctly drafted and executed. To be binding, BFAs must meet certain requirements: if they are not met, the agreement may be set aside or void. To avoid the agreement being set aside, each party must obtain independent legal advice and have their solicitor sign a certificate of independent legal advice.
Parties should review BFAs entered into before the commencement of or during a marriage or relationship about every two years or after a significant event in the lives of the parties, such as the birth of a child or a party receiving an inheritance.
What can a BFA cover?
A BFA can specify how the parties agree to divide the asset pool if the relationship fails. They deal with property, financial resources and maintenance, which can include:
- The financial settlement (i.e. property settlement, including superannuation entitlements);
- The financial support (maintenance) of one spouse by the other;
- The agreed arrangements for the children; and
- Any incidental issues.
Issues a BFA can deal with include:
- Preserving family farms or other businesses for future generations;
- Protecting existing assets or likely inheritances;
- Ensuring that children of previous relationships inherit;
- Avoiding disputes about financial matters at the end of a relationship; or
- Providing more weight to the contribution of a higher income earner.
What your lawyer needs to know to advise you about a BFA
When your lawyer is advising you about a BFA and before they can draft an agreement, they may need to take the following into account:
- Both parties’ current assets including chattels, vehicles, shares, furniture, and valuables;
- The current value of these assets;
- Their superannuation entitlements;
- The current market value of property a party intends to own personally;
- Each party’s liabilities including any loans, mortgages or debts;
- Whether there is any other family law financial agreement which may apply;
- The date when cohabitation commenced;
- The date when the relationship commenced;
- Both parties’ occupations and future capacity to earn an income;
- Whether either party has been married previously; and
- The number and age of any children.
What are the benefits of a BFA?
In the event that a relationship ends, a properly drafted and executed BFA may give the parties a degree of certainty, making them feel more secure in knowing that the property they have accumulated before the relationship or marriage is safe. If parties agree in advance regarding the division of property after a separation, any issues arising are more likely to be resolved with less stress, argument and legal expenses, and no court delays.
Terminating a BFA
The Family Law Act sets out the circumstances in which the FCFCOA may set aside a BFA. These include:
- where the agreement has been obtained by fraudulent means, including material non-disclosure (e.g. by failing to disclose an asset);
- a party to the agreement entered into the BFA for the purpose of defrauding or defeating a creditor;
- the agreement is void or unenforceable (e.g. the BFA was not prepared properly and does not comply with the legislative requirements set out in sec 90G or sec 90UJ);
- circumstances have arisen since the BFA was made which make it impossible or impracticable for the BFA to be carried out;
- since the making of the BFA, a material change in circumstances has occurred (relating to the care, welfare and development of a child of the relationship) and, as a result of the change, a party to the agreement will suffer hardship if the Court does not set the BFA aside;
- a party’s conduct in the making of the BFA was, in all the circumstances, unconscionable;
- a “payment flag” is operating on a superannuation interest covered by the BFA and there is no reasonable likelihood that the operation of the flag will be terminated by a “flag lifting” under that part; or
- the BFA covers at least one superannuation interest that is an “unsplittable interest”.
A Binding Financial Agreement can be “terminated” in one of two ways:
- the parties can enter into another financial agreement, provided that a specific provision is included in the new agreement stating that the former agreement is terminated; or
- the parties can enter into a “termination agreement” pursuant to sec 90J (for married couples) or sec 90UL (for de facto couples). As with the original BFA, for a termination agreement to be binding and enforceable, it must be signed by all parties, and each party must have received independent legal advice with respect to the termination agreement.
Contact us for advice and assistance in negotiating, correctly drafting and executing a BFA tailored to your specific circumstances.