Binding Financial Agreements

A binding financial agreement, often referred to as a ‘BFA’, or a ‘separation agreement’ or a ‘prenup’ is a formal agreement reached between two parties who are in a relationship or about to enter into a relationship.

There are three types of financial agreements that can be entered into, which are categorised according to the nature of the relationship and the time they are made, thosebeing:-

  • Before a de facto relationship commences (s 90UB);
  • During a de facto relationship (s 90UC);
  • After a de facto relationship ends (s 90UD);
  • Before marriage (s.90B);
  • During a marriage (s. 90C); and
  • Following the breakdown of a marriage (s.90D).

Financial agreements can deal with different types of matters, for example:

  • How property and financial resources are to be divided between the parties following a separation.
  • Maintenance
  • Matters “incidental or ancillary to” the above matters.

In essence, the idea is that parties enter into a binding financial agreement which provides for how their assets and liabilities will be divided in the event of a separation.  It has the effect of ousting the jurisdiction of the Family Court, so that the parties themselves agree and decide on how their assets are to be divided if they separate, and neither party can then approach the Family Court for a different outcome.

There are therefore considerable advantages to binding financial agreements, such as:-

  • A binding financial agreement empowers a couple to decide in advance what would be a fair distribution of their assets if their relationship fails.
  • A binding financial agreement can be used to protect or quarantine some or all of the assets of one party from the other, especially initial contributions made at the commencement of the relationship, and future inheritances.
  • Putting a binding financial agreement in place now is likely to be a more cost effective solution than trying to negotiate a settlement following a separation. Certainly it will be far less expensive than going to court and having the division of your assets and financial resources and any issues with respect to spousal maintenance decided by a judge.

There are however some disadvantages associated with binding financial agreements, which include the following:-

  • The information required in order to prepare a legally binding and enforceable binding financial agreement is detailed and can be complicated. A well drafted BFA makes provision for things that may or may not occur in the future, and endeavouring to provide for various future scenarios that may never arise can be problematic and difficult.
  • The law surrounding binding financial agreements is complicated and continues to be in a state of evolution. There remains uncertainty about whether and in what circumstances a BFA might be set aside and how the Courts will interpret the law for the particular situation of the parties.
  • There is the continuing possibility of further amendments to the legislation governing BFA’s, and how the legislation will in turn be interpreted by the courts. The form and effect of future change is difficult to predict.

Preparing a Binding Financial Agreement and independent legal advice

Significantly, you cannot prepare a binding and legally enforceable BFA without using lawyers.  It is a statutory requirement that each party to the agreement obtain their own independent legal advice in relation to it.  This is substantially because unlike consent orders, there is no safeguard associated with BFA’s, which are essentially contracts between two parties.  Consent orders are reviewed by Registrars and Judges in the Family Court, which provides something of a safety net for the parties, as the court needs to be satisfied that the orders proposed to be made are fair and reasonable having regards to the circumstances of the case before the orders are made.  With BFA’s, there is no requirement that the agreement be fair and reasonable, and no requirement that it be checked off by a court.  Independent legal advice is therefore mandatory.

In any case, it is very important that a binding financial is property drafted by someone who knows what they’re doing.  Solicitors with expertise in this area of family law will be able to draft a binding financial agreement that not only reflects the agreement reached between the parties, but one that is legally binding, complies with the relevant legislation and is at minimal risk of being overturned at a later date.

A Binding Financial Agreement is legally binding.

Once made and signed, neither party can change their mind about abiding by a BFA in the event of a separation.  It is a legally binding contract and enforceable in the same way as any contract is.  If one party wants to have the BFA set aside, but the other one does not, then it is possible to approach the court to try to have the BFA set aside.  However on the face of it, the court will not wish to intervene in an agreement that the parties reached and formalised themselves.  Your case would need to fall within fairly specific criteria in order for the court to give any consideration to setting your agreement aside.  Pursuing any kind of court application is likely to be expensive and time consuming, and so you would need to be confident about your prospects of success before embarking on any application to have it set aside.

Criteria for having a binding financial agreement set aside.

There are certain circumstances in which a court will give consideration to setting aside a legally binding BFA.  The main reasons are:-

  • That there has been a material change in circumstances relating to the care, welfare and development of a child of the relationship, such that a party would suffer hardship if the Binding Financial Agreement was not set aside;
  • That one party signed the agreement under duress.
  • That the agreement was obtained by fraud, for example, the non disclosure of relevant material or a failure to disclose financial circumstances.
  • That one party to the BFA engaged in conduct which is found to be unconscionable.
  • That circumstances have arisen since the BFA was made that make it impracticable for the BFA to be carried out.

Significantly, a court will not set aside an agreement simply because it is not fair to one party and indeed this is often the case.

If you’d like more information about binding financial agreements, click here to look at our BFA FAQ’s page.  If you’d like an instant quote to have one drafted, click here.