What is a Binding Financial Agreement (BFA)?

A binding financial agreement (often just called a BFA) allows married or de facto couples to agree to family law financial arrangements including property settlements, without going to court. Such agreements can be entered into at the beginning of your relationship or before marriage (like a “pre-nup” or pre-nuptial agreement) or at the time of separation or divorce. Family law financial agreements are enforceable by law, in particular section 90B of the Family Law Act 1975 for pre-nuptial agreements before marriage, section 90C for married couples, and section 90D for divorced couples.

Financial agreements can be very useful tools to protect wealth when you are contemplating marriage or entering into a de facto relationship, and to divide assets equitably in unique circumstances upon separation.

Although such private agreements are called “binding”, the law around financial agreements can be complex and the agreements may not always be binding if not all legal requirements are met. Financial agreements can also be set aside by the court in certain circumstances.

Crucially, before entering a financial agreement, each party to the agreement must be provided with independent legal advice by an Australian legal practitioner about the prescribed matters. That advice should include how the agreement will affect your rights, and whether or not entering into an agreement is to your advantage or disadvantage. The agreement itself also needs to be carefully drafted, given the complexity of the law in this area, and be specific to your circumstances. For these reasons it’s vitally important that you obtain proper legal advice before contemplating a binding financial agreement.

Issues such as parenting arrangements and child custody cannot be covered in a financial agreement, but agreements can include matters such as child support payments and other financial support for children.  

The benefits of a financial agreement include:

• Preserving assets against claims by your partner if you separate or divorce, for example where one or both parties to a new relationship have significant assets from a previous relationship;

• Protecting inheritances, including family heirlooms;

• Ensuring financial support for the other party, in the event of separation or divorce;

• Having special terms for delayed or ongoing payments for property settlement, spousal maintenance, or child maintenance as well as child support arrangements, which might not be acceptable to the court; and

• Avoiding the emotional and financial costs of going to court.

 The disadvantages can include:

• No requirement that financial agreements are fair, whereas a property settlement through the family law courts must be “just and equitable”;

• May have unexpected consequences, particularly for the financially weaker party, in the event of future separation;

• If a pre-nuptial agreement, the parties may have to regularly review and reconsider the terms of the agreement at key moments in their life; and

• May be set aside by the court in certain circumstances.

The court can set aside an agreement for a variety of reasons, including but not limited to:

• The agreement was obtained by fraud, including non-disclosure of a significant asset or liability;

• The agreement was signed under duress. This does not need to involve a threat of physical violence: an agreement foisted upon a bride a few days before her wedding has been deemed to be made under duress;

• A party to the agreement was under undue influence;

• There was unconscionable conduct;

• If a party is experiencing hardship in relation to a child of the parties; and

• If there is an anomaly in the process of making the agreement. For example, in Fevia & Carmel-Fevia [2009] FamCA 816, the court set aside a financial agreement because the wife signed a copy of the agreement that was missing an annexure, whereas the husband signed it with one.

Financial agreements can be entered into before, during or after the relationship or marriage. Although the Family Law Act imposes certain time limitations on property settlement after separation, financial agreements can be entered into after the limitations have expired. If you want to update or change a financial agreement, it must be terminated and a new one will have to be created and agreed upon. Financial agreements will usually continue to operate even after your death, and be binding upon your estate which may affect your beneficiaries.

In summary, binding financial agreements are a useful and powerful tool if used correctly, but proper legal assistance is a must! Our team at Shorestone Legal have prepared and reviewed several financial agreements, and can assist you with your BFA needs.