Decisions about money and property are among the most practical (and most sensitive) that couples make. Whether you are entering a new relationship, already married or living together, or simply want certainty about how your assets would be dealt with if a relationship ended, a Binding Financial Agreement (BFA) can be a valuable planning tool.
This article explains what BFAs are, when they can be made, and the strict legal requirements that must be met for one to be effective.
What is a Binding Financial Agreement?
A Binding Financial Agreement is a written agreement between two people that sets out how their property, financial resources, and (in some cases) spousal maintenance will be dealt with. BFAs are provided for under the Family Law Act 1975 (Cth) and are available to both married and de facto couples.
The purpose of a BFA is to allow a couple to reach their own arrangement privately, rather than leaving property matters to be decided by a court if the relationship breaks down. When properly made, a BFA can give both parties greater certainty and can help protect assets brought into a relationship, such as a business, an inheritance, or property acquired before the relationship began.
When can a BFA be made?
One of the strengths of a BFA is its flexibility as to timing. An agreement can generally be entered into:
- Before a relationship for example, before marriage (sometimes informally called a “prenup”) or before a couple begins living together. For married couples this is dealt with under s 90B, and for de facto couples under s 90UB.
- During a relationship: while the couple is married (s 90C) or in a de facto relationship (s 90UC).
- After separation or divorce: following the end of a marriage (s 90D) or a de facto relationship (s 90UD).
Because an agreement can be made at any of these stages, couples can use a BFA to record their intentions at the outset of a relationship, to update arrangements as circumstances change, or to formalise a settlement after separation.
BFAs and de facto relationships
BFAs are not limited to married couples. De facto couples (including same-sex couples) can also enter into a BFA under the relevant provisions of the Family Law Act.
Western Australia is treated differently for de facto relationships, which are governed by State legislation rather than the Family Law Act. Couples in WA should obtain advice specific to the Family Court Act 1997 (WA).
What must happen for a BFA to be binding?
The Family Law Act sets out strict requirements that must be satisfied for a financial agreement to be binding. If these are not met, the agreement may not be enforceable. Broadly, the requirements include:
- The agreement must be in writing and signed by both parties.
- Each party must receive independent legal advice (from a different lawyer) before signing, covering the effect of the agreement on their rights and the advantages and disadvantages of entering into it.
- Each party must be given a signed statement confirming that this advice was provided, and a copy must be provided to the other party.
- The agreement must not have been terminated or set aside by a court.
The independent legal advice requirement is central. Because each party must be separately advised, one lawyer cannot act for both people. This is one reason BFAs should never be treated as a simple “form to fill in.”
The specific compliance requirements are set out in s 90G for married couples and s 90UJ for de facto couples, and should be confirmed against the current legislation before any agreement is prepared.
What can a BFA cover?
A BFA can deal with matters such as:
- How property and assets will be divided or retained if the relationship ends.
- The treatment of financial resources, including superannuation (subject to the applicable rules)
- Spousal or partner maintenance arrangements.
It is important to understand that a BFA deals with financial and property matters. Arrangements for the care of children are dealt with separately under the Family Law Act, and a court retains its role in relation to children regardless of what a couple has agreed.
When can a BFA be set aside?
A BFA is not automatically immune from challenge. A court has power to set aside a financial agreement in certain circumstances, which may include:
- The agreement was obtained by fraud, including material non-disclosure of assets.
- A party entered the agreement through duress, undue influence, or unconscionable conduct.
- Circumstances have arisen that make it impracticable for the agreement (or part of it) to be carried out.
- A material change relating to the care of a child means a party or child would suffer hardship if the agreement were not set aside.
The grounds are set out in s 90K for married couples and s 90UM for de facto couples. Because these grounds exist, full and frank financial disclosure and genuine independent advice are essential to giving a BFA the best prospect of holding up.
The benefits and the limitations
Potential benefits of a well-prepared BFA include greater certainty about how assets would be dealt with, protection for assets brought into a relationship, the ability to keep financial matters private, and potentially avoiding the cost, delay, and stress of contested court proceedings.
Limitations to keep in mind include the strict formal requirements (which mean legal advice is not optional), the possibility that an agreement can be set aside, and the fact that a BFA needs to be carefully drafted to remain appropriate as circumstances change. A BFA is a significant legal document, and both parties should approach it with full information and independent advice.
How Owen Hodge Lawyers can help
A Binding Financial Agreement can be an effective way to plan ahead and protect what matters to you, but only if it is prepared correctly and tailored to your circumstances. Our family law team can advise you on whether a BFA is right for your situation, explain your rights and obligations, and prepare or review an agreement to help ensure it meets the requirements of the law.
If you would like to discuss a Binding Financial Agreement, contact Owen Hodge Lawyers to arrange a confidential consultation.
This article provides general information only and is not legal advice. It does not take into account your particular circumstances. You should obtain independent legal advice tailored to your situation before acting on any information in this article. Laws and their application can change, and the information here should be confirmed against current sources at the time of reading.