Have you ever wondered how couples can protect their financial interests without the need for lengthy court battles if the relationship breaks down?
A Binding Financial Agreement (BFA), more commonly referred to as a 'pre-nup', is a practical solution that allows you and your partner to decide, in advance, how assets and finances will be handled in the event of a relationship breakdown. Whether you’re considering marriage, entering a de-facto relationship, or are already in one, a BFA provides clarity and peace of mind for the future. But what makes a BFA legally binding, and can a judge ever set it aside?
What is a Binding Financial Agreement (BFA)?
In family law, a Binding Financial Agreement (BFA) is a legal contract between individuals, including same-sex partners, recognised under the Family Law Act 1975, and states how a couple’s property, assets, superannuation and liabilities (debts) will be divided in the event of a relationship breakdown.
Essentially, a BFA offers a pre-arranged solution to financial disputes in case the relationship ends, saving time, emotional stress, and legal costs.
It's important to note that once parties enter into a BFA, they give up their rights under the Family Law Act 1975 for the Federal Circuit and Family Court of Australia to determine any or all property and financial matters should their relationship end.
What Does A BFA Include?
What a BFA does and does not include will ultimately depend on the nature and extent of the assets held jointly and individually, and what the couple's goals and intentions are.
A couple can decide to limit a BFA to certain assets, with the remaining assets being dealt with under the Family Law Act 1975. For many couples contemplating marriage, this is often preferable if they only wish to protect certain assets (e.g. assets they have been gifted or loaned by their family prior to the relationship) rather than protecting everything from their future spouse.
The terms of a BFA will generally be one-sided in favour of the party who has the greater financial assets. However, this may not always be appropriate, particularly in circumstances where one partner holds assets in their sole name for financial or legal reasons.
Both individuals must make a full disclosure of all of their assets prior to entering into a BFA, and a BFA will usually include a schedule of assets and liabilities of the parties to record what was disclosed. A faulure to disclose assets can be grounds for a court to set aside a BFA.
It is important to note that a BFA does not cover child custody arrangements or child support payments, and only concerns assets held by the individuals.
When obtaining independent legal advice, a lawyer should advise you whether the terms of the BFA are unfair, or otherwise not in your best interests, and assist in negotiating more equitable terms.
Why Should You Consider A BFA?
Whilst you may think it pessimistic to consider the end of a relationship, putting practical steps in place before and during your relationship can ensure that your (and your spouse's) assets are protected.
It's important to recognise that for many people, you will have spent years of your life acquiring financial and non-financial assets. A BFA provides peace of mind and certainty as to what will happen to these assets should your circumstances change.
By setting clear terms on how assets will be divided or how maintenance will be handled in the event of a relationship breakdown, couples can avoid potential future conflicts, unnecessary stress and future legal costs.
When Can You Enter Into A BFA?
Couples can enter into a BFA at any stage in a relationship, including:
Before getting married or before entering into a de facto relationship (commonly referred to as a 'pre-nup')
While married or during a de facto relationship
During a separation but before filing for a divorce
After a divorce or the breakdown of a de facto relationship
Are BFAs Enforceable?
The Family Law Act 1975 includes specific requirements for a BFA to be binding and enforceable.
BFAs are deemed to be binding if:
The Agreement is signed by both parties
Before signing the Agreement, each party was provided with independent legal advice about the effect of the Agreement on their rights, as well as the advantages and disadvantages of making the Agreement
After signing the Agreement, each party was provided with a signed statement by their lawyer confirming that advice was provided
Signed copies of the two lawyers’ statements are exchanged between the parties
The Agreement has not been terminated or set aside by the court
The most critical of above is that both parties must receive independent legal advice about the agreement and its benefits and risks. Without this legal advice, a BFA cannot be enforced.
Can A Court Set Aside Binding Financial Agreements?
Whilst BFAs are designed to be binding and enforceable, they can be set aside under certain circumstances.
A court may invalidate a BFA if:
the BFA has failed to meet technical requirements (as noted above)
the BFA was obtained by fraud or duress (for example, requiring someone to sign the BFA shortly before the parties’ wedding under threat)
a party failed to disclose assets or relevant information
the BFA was entered into to defeat or defraud a creditor
there have been significant changes to either or both parties’ circumstance which makes it impractical to carry out the set agreement
there has been a change in circumstances relating to a child, and it would result in hardship for the child or their carer
These are outlined in sections 90K and 90UM of the Family Law Act 1975.
If the BFA is set aside, each party is then free to apply to the court for a property settlement, like any other separated couple.
How Much Does A Binding Financial Agreement Cost?
The cost of obtaining a BFA will depend based on your unique situation, and the goals you are wanting to achieve. There’s no such thing as a ‘simple’ BFA.
Given the complexity of these documents, a BFA should always be drafted by an experienced solicitor to suit your specific needs. There is no generic form you can simply download online and complete on your own. Regardless, and as noted above, you are required to obtain independent legal advice in order for it to be binding.
The cost for the preparation or review of a BFA will ultimately depend on the length and complexity of the agreement, and whether you and your partner have already reached some level of agreement or are still negotiating. For this reason, we recommend contacting our office and discussing your unique situation with our friendly team to get a better indication of costs.
Ready To Get A Binding Financial Agreement?
If you are considering entering into a BFA, always speak with your partner as soon as possible. The decision to enter into a BFA may be intimidating for some individuals, and it is important both of you are agreeable.
If you and your partner are ready to get a BFA, it’s essential to consult with a reputable and experienced solicitor to ensure the document is, or has been, drafted correctly and is in your best interests.
At RHC Solicitors, we can prepare and/or review BFAs for clients, and provide an extensive written advice and in-person consultation with our senior solicitors to ensure everything is in order. We also assist with any negotiations that may be required to ensure the agreement is fair, and that you are satisfied before signing it.
A well-drafted BFA can offer a sense of security and clarity, helping to navigate the often complex and emotional aspects of a relationship breakdown. With the right legal advice and guidance, a BFA can be a valuable tool in protecting your future.
Don't hesitate to contact us today to learn more about how we can assist you in drafting or reviewing a Binding Financial Agreement that meets your needs.
Disclaimer: This publication is not intended to be comprehensive, nor does it constitute legal advice. We are unable to ensure the information is current and there is no guarantee in relation to accuracy. You should seek legal or other professional advice before acting or relying on any of the content of this publication. The views and/or opinions expressed in this publication is that of the author and may not necessarily represent the views and/or opinions of RHC Solicitors.
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