08 Aug BINDING FINANCIAL AGREEMENTS
What is a binding financial agreement (BFA)?
A BFA (or pre-nup as sometimes referred to) is an agreement between parties that covers the division of property. A BFA will generally outline how the parties are to manage their financial affairs if they were to separate. The purpose of a BFA is to avoid the parties going to Court to deal with the division of their property upon separation.
When can you enter into a BFA?
A Binding Financial Agreement (BFA) can be entered in to at different stages of the relationship, including:
- in contemplation of a marriage;
- in contemplation of a de facto relationship;
- during a marriage;
- during a de facto relationship;
- after separation or divorce; or
- after a breakdown of a de facto relationship.
What makes the BFA binding and enforceable?
The Family Law Act 1975 (Cth) imposes strict requirements on parties entering into a BFA. The BFA will only be binding if:
- the agreement is signed by all parties; and
- before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided to that party of making the agreement; and
- either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (2) was provided to that party (whether or not the statement is annexed to the agreement); and
- a copy of the statement referred to in paragraph (3) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and
- the agreement has not been terminated and has not been set aside by a court.
If the above requirements are not met the BFA will not be binding on the parties.
Why do you need independent legal advice?
A financial agreement is not registered with a court. It is intended to be a binding and enforceable agreement between the parties only.
Given that the court does not review and confirm a financial agreement before it is entered into by the parties (as the court will do if parties file consent orders to finalise their agreement), there are stringent requirements about parties receiving independent legal advice before they sign a financial agreement and requirements set down in the Family Law Act 1975 (Cth) about how a financial agreement should be created and recorded.
Can a BFA be set aside?
Yes, a BFA can be set aside, if:
- There is evidence of fraud (this could include a failure to disclose assets or liabilities at the time the agreement was made).
- The agreement was entered into solely for the purpose to defraud or defeat a creditor or was entered into with reckless disregard to a creditor’s interests.
- One party is experiencing hardship due to the agreement or in relation to a child of the parties.
- The agreement is found to be void or unenforceable. This could be due to mistake, public policy, misrepresentation, one party was under duress at the time of execution, there has been a breach of the agreement or unconscionable conduct.
- The agreement is deemed to be impractical due to a change in one or both of the party’s circumstances.
- There is an issue with superannuation, for example: the agreement provides for a superannuation interest that cannot be split.
Can a BFA be terminated?
A BFA can be terminated by agreement between the parties. Such an agreement must be written and satisfy the same requirements as those in entering in to a BFA, such as both parties must sign the termination agreement, each party must be provided with legal advice about the effect of the termination agreement the advantages and disadvantages of terminating the agreement and must receive a signed statement from the legal practitioner who gave them this advice.
A BFA can also be terminated by the parties by entering in to a new financial agreement which includes a provision that terminates the first agreement.
Is there an alternative to a BFA
Yes, but only in circumstances where the relationship has ended. The alternative is embodying the property settlement by way of Consent Orders filed through the Family Court of Australia. Consent Orders are intended to end the financial affairs between parties. The advantage of Consent Orders as opposed to a BFA is that the parties do not need to obtain a certificate of legal advice to make them binding. Consent Orders are also more difficult to overturn or vary once the orders are made.
Things to be cautious about
- Plan carefully and get good advice: if the BFA is drafted properly and the parties receive good legal advice as to its effect and the advantages and disadvantages, then the BFA is more likely to be binding and enforceable.
- Don’t think of the agreement as a mere formality: if you are seeking to protect assets that you have bought into the relationship, then a BFA could assist you, but it is important to consider how all property owned by either of you or accumulated jointly during the marriage or de facto relationship will be divided in the event of separation. BFA’s can be complex and require considerable thought.
- Don’t wait until just before the wedding: parties should exercise caution in executing BFAs when a wedding is soon to take place. The threat of abandoning an impending wedding can be a form of duress and such agreements have been seen to be set aside. It may be more appropriate to draft the BFA after the wedding, if one is scheduled.
If you have an enquiry with respect to a BFA, particularly if you have entered into a relationship with significant wealth, contact one of our lawyers and we can assist you to prepare the necessary documents to protect your financial interests.
Call our office on (08) 7228 6110 or email firstname.lastname@example.org.
This post was developed by our Senior Solicitor, Chanel Martin.