1. Binding Financial Agreements
A Binding Financial Agreement is a private agreement made under the Family Law Act 1975 that can deal with financial matters between couples.
Depending on the circumstances, an agreement can be entered into before a marriage, during a marriage or after divorce. Similar agreements may also be made before, during or after a de facto relationship.
If properly prepared and binding, a financial agreement can determine how specified financial matters are dealt with rather than leaving those issues to be decided through property proceedings in Court.
For some couples, the attraction is certainty.
Others are more focused on protecting a particular asset, business or financial interest.
And for people who have already separated, a BFA can be a way of drawing a line under the financial relationship and moving forward.
There is no single version of a BFA that works for everybody. The agreement should be built around your circumstances.
What Can a Binding Financial Agreement Cover?
What the agreement actually covers depends on your circumstances, but matters addressed may include:
- property owned before the relationship;
- property acquired during the relationship;
- real estate and investment properties;
- savings and other financial assets;
- financial resources;
- interests in companies, trusts or family businesses;
- debts and liabilities;
- how certain assets are to be dealt with if the relationship ends;
- financial arrangements following separation; and
- spousal or de facto maintenance where appropriate.
An agreement does not necessarily need to deal with every financial issue between you.
Some couples want comprehensive arrangements covering most aspects of their finances. Others have one or two particular assets they are concerned about.
We can talk you through what is appropriate for your situation.
Is a BFA the Same as a Prenup?
“Prenup” or “prenuptial agreement” is the term commonly used for an agreement made before marriage.
In Australia, the relevant legal arrangement is generally a financial agreement made under the Family Law Act.
A BFA is also much broader than the traditional idea of a prenup because financial agreements are not restricted to people who are about to get married. They can potentially be entered into at several stages of a marriage or de facto relationship.
Whatever you choose to call it, what matters is that the agreement is prepared correctly and that you understand its legal effect.
2. Binding Financial Agreements Before or During a Relationship
You do not need to be expecting your relationship to fail before discussing a financial agreement.
In fact, many couples prefer to deal with these matters while their relationship is going well.
Having the conversation early can help both people understand what they expect financially and reduce uncertainty about particular assets.
Financial Agreements Before Marriage
A BFA made before marriage may be worth considering where, for example, one or both parties:
- already own substantial property;
- have accumulated significant savings or investments;
- own or have an interest in a business;
- expect to receive an inheritance;
- have children from an earlier relationship;
- are entering a second or subsequent marriage;
- have substantially different financial positions; or
- simply want greater certainty about financial arrangements.
Having different levels of wealth does not automatically mean a BFA is necessary.
It is simply one option worth discussing.
Our family lawyers can set out the advantages and disadvantages based on your own circumstances, rather than assuming an agreement is automatically right for you.
Financial Agreements During Marriage
Financial circumstances rarely stay exactly the same throughout a relationship.
A business might grow. An inheritance may be received. One person may stop working to care for children. A property portfolio may expand. Family members may contribute money towards a home.
Couples who are already married can consider a financial agreement when their financial circumstances or priorities change.
The important thing is to approach the agreement properly.
Both people should have the opportunity to consider the proposed arrangements, understand what they mean and obtain their own independent advice.
Binding Financial Agreements for De Facto Couples
Binding Financial Agreements are not limited to married couples.
Eligible de facto couples can also enter into financial agreements before entering a de facto relationship, during the relationship or after its breakdown.
The agreement can provide greater certainty around assets and financial arrangements in much the same way as an agreement involving married spouses.
However, the legislative provisions applying to de facto financial agreements are different from those applying to marriages, so it is important that the agreement is prepared under the correct part of the legislation.
What Happens if De Facto Partners Later Marry?
This is an important point that can easily be overlooked.
A financial agreement made for a de facto relationship does not simply continue unchanged if the parties later marry.
If marriage is on the horizon, speak with a family lawyer before the wedding so that the existing arrangements can be reviewed and, where appropriate, a new agreement can be considered.
A small amount of planning beforehand may prevent a much larger problem later.
3. Binding Financial Agreements After Separation or Divorce
Financial agreements are not just about planning for what might happen one day.
They can also be used when a relationship has already ended.
If you and your former partner have reached agreement about your property and financial affairs, a Binding Financial Agreement may be one way of formalising those arrangements.
For example, it may set out who keeps particular assets, what happens to certain liabilities and how agreed financial matters are to be resolved.
Where an agreement is properly made and binding, it can provide finality around the financial issues it covers without asking the Court to decide those matters.
Do We Have to Go to Court?
Not necessarily.
A financial agreement is a private agreement and does not require the Court to decide whether your proposed property arrangements should be made.
This is a key difference between a BFA and consent orders.
However, avoiding Court approval does not mean the process should be taken lightly.
Because the Court is not approving the terms for you, getting careful legal advice and the documentation right becomes especially important.
BFA or Consent Orders?
When separating couples reach agreement about property, there may be more than one way to formalise the outcome.
Two common options are:
- a Binding Financial Agreement; or
- consent orders approved by the Court.
They are not interchangeable.
Consent orders involve an application asking the Court to make the agreed terms into court orders. A Binding Financial Agreement operates as a private agreement and has its own technical legal requirements.
The better option depends on the circumstances.
There may be reasons why consent orders are preferable in one matter and a BFA is appropriate in another.
Rather than starting with the document, we prefer to start with your situation.
Tell us what you have agreed, what you are concerned about and what outcome you need. We can then walk you through the available options and help you decide which pathway makes sense.
4. Getting a Binding Financial Agreement Right
BFAs can provide valuable certainty, but they are also technical legal documents.
This is one area of family law where shortcuts can cause expensive problems later.
A document may look perfectly reasonable when everybody is getting along. The real test often comes years later, when circumstances have changed and one person wants to rely on the agreement.
Good advice at the beginning is what gets you through that test.
Why Do Both Parties Need Independent Legal Advice?
For a financial agreement to satisfy the statutory requirements for binding status, each party must receive independent legal advice, before signing, about how the agreement affects their rights and its advantages and disadvantages.
That means one lawyer cannot simply act for both of you and tell you that the agreement is fine.
Each person needs their own lawyer.
If Quill Legal is advising you, our job is to advise you.
We will look at the agreement from your perspective, explain how the clauses may affect you and identify anything we believe requires further discussion.
Our role is not simply to witness your signature.
I’ve Been Given a BFA by My Partner. What Should I Do?
Do not feel that you have to sign immediately.
Send us a copy and allow enough time for proper review.
We will consider the agreement, discuss your financial circumstances and explain the practical effect of the terms.
If there are provisions we believe should be changed, clarified or negotiated, we can discuss those issues with you and, where appropriate, communicate with the other party’s solicitor.
You should understand an agreement before signing it, not discover what a clause means years later.
Can a Binding Financial Agreement Be Set Aside?
Although the word “binding” is in the name, a financial agreement is not immune from challenge.
The Family Law Act gives the Court power to set aside financial agreements in certain circumstances.
The facts of each case vary, but issues may include fraud or material non-disclosure, an agreement being void or unenforceable, circumstances making it impracticable to carry out, certain material changes involving the care or welfare of a child that result in hardship, or unconscionable conduct.
This is another reason why the circumstances surrounding the agreement are just as important as the wording.
Full information, proper advice, careful drafting and a sensible process can all matter.
If you are concerned about an existing agreement, whether you want to rely on it or believe there may be grounds to challenge it, speak with us before taking action.
Can We Change or End a BFA?
Relationships and financial circumstances change.
You should not simply cross out clauses, add handwritten changes or assume that a later informal arrangement automatically replaces an existing BFA.
There are formal legal requirements for terminating financial agreements, and changing the financial arrangements may require another properly prepared agreement.
If your existing BFA no longer reflects your circumstances, Quill Legal can review it and advise you about the appropriate next step.
