Binding Financial Agreements in Family Court: What Are They

Co-Authored by Angelina Romeo

KEY TAKE-AWAYS

• BFAs can be made at different stages of a relationship: Married and de facto couples can enter into a Binding Financial Agreement before, during, or after a relationship.

• BFAs provide flexibility and financial certainty: They can set out how assets, liabilities, superannuation, business interests and spousal maintenance will be handled if a relationship breaks down.

• Independent legal advice is essential: Both parties must receive independent legal advice and satisfy the relevant requirements under the Family Law Act 1975 for a BFA to be binding.

• BFAs are not the only option: Consent Orders may also be used to formalise property settlements following separation. The appropriate option depends on the parties’ circumstances and financial arrangements.

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Many people are familiar with the idea of a “prenup, but what they may not realise is that a Binding Financial Agreement (BFA) can be entered into before, during, or after a relationship. Whether you’re looking to protect assets you’ve acquired before a relationship, clarify financial arrangements during a relationship or finalise property matters following separation, a BFA may be worth considering.

But what exactly is a BFA and when should you consider one?

What is a Binding Financial Agreement? 

A Binding Financial Agreement is a private legal agreement between parties to a marriage or de facto relationship that sets out how certain financial matters are to be dealt with. Usually, a BFA will set out how the parties’ assets, liabilities and financial resources are to be divided if their relationship breaks down.

Importantly, a BFA is able to be tailored to the circumstances of the couple and does not necessarily need to deal with every aspect of their finances. Depending on the circumstances, a BFA can cover issues like:

• How real property is to be retained or transferred;

• How assets like bank accounts and vehicles are dealt with;

• How liabilities, like a home mortgage, are to be divided;

• How businesses are to be dealt with;

• Whether spousal maintenance is required and how it is to be calculated; and

• How superannuation is dealt with – whether each party retains their own or whether a superannuation split is necessary.

Unlike Consent Orders, which require approval by the Court, a BFA allows parties to determine their own financial arrangements without asking the Court to determine what is fair and equitable in the circumstances. In this way, a BFA may help parties avoid the time, cost and stress often associated with property settlement disputes and court proceedings.

 

When can a BFA be made?

A common misconception is that BFAs can only be entered into before marriage. In reality, BFAs can be entered into by married and de facto couples at various stages of their relationships, providing flexibility to address changing financial circumstances over time.

• Before a relationship or marriage, a BFA may be used to protect assets one or both parties bring into the relationship;

• During a relationship, parties may choose to enter into a BFA where financial circumstances change, such as receiving an inheritance, purchasing a business or acquiring significant assets;

• After separation, a BFA can be used to formalise a property settlement and finalise financial arrangements between the parties.

 

Why do people enter into BFAs?

In family law practice, BFAs operate as an important risk-management and asset protection tool and are entered into for a variety of reasons, such as:

• To protect assets brought into a relationship, including property, savings, investments, businesses or expected inheritance;

• To provide certainty about how assets, liabilities and financial resources will be divided if the relationship ends;

• To avoid costly and lengthy court proceedings;

• To protect family wealth or business interests, especially in circumstances where one party is involved in a business or family trust;

• To provide for children from previous relationships by ensuring that certain assets are preserved from them;

• To formalise spousal maintenance arrangements;

• To maintain privacy, because BFAs are private agreements and generally do not require court approval.

 

Are BFAs always enforceable?

BFAs are legally enforceable in the Federal Circuit and Family Court of Australia, provided that they comply with the requirements of the Family Law Act 1975.

For a BFA to be binding, generally:

• It must be in writing and signed by all parties;

• Each party must receive independent legal advice about the effect of the agreement and its advantages and disadvantages, prior to signing;

• The lawyers must provide signed certificates confirming that advice was given;

• Both sides must fully disclose all assets, debts, income and other financial resources;

• It must be a voluntary agreement, with no evidence of fraud, duress, undue influence or unconscionable conduct.

These requirements are designed to ensure that both parties understand the agreement and have had the opportunity to obtain independent legal advice.

A court can refuse to enforce or can set aside a BFA in circumstances where there is:

• Non-compliance with the technical requirements of the Family Law Act;

• Fraud or non-disclosure of significant assets or liabilities;

• Duress, undue influence or unconscionable conduct;

• Change in circumstances, such as unforeseen hardship which would make the agreement unfair to enforce.

Although a BFA may be agreed upon and signed by the parties, it will only be enforceable if it satisfies the statutory requirements and is unaffected by certain circumstances which could make enforcement unjust or impracticable.

 

Other Ways to Finalise Financial Arrangements 

A BFA is one way of formalising financial arrangements between a couple, but it is not the only option.

Where parties have separated and have reached agreement about the division of their property and financial resources, they may choose to formalise their settlement through consent orders. Consent orders are submitted to the Court for approval and, once made, have the same force and effect as any other Court order. Unlike a BFA, the Court must be satisfied that the proposed orders are just and equitable before they will be approved.

Which option is more appropriate will depend on a range of factors, such as:

• Whether the parties have reached agreement regarding the division of their assets and liabilities;

• The nature and value of the property and financial resources involved;

• The complexity of the proposed settlement arrangements; and

• The parties’ broader personal, financial and future needs.

 

Seeking Legal Advice 

While BFAs can provide certainty and help parties manage their financial resources, it is not a one-size-fits-all solution. The enforceability of a BFA will depend on a range of factors, including compliance with the legislative requirements and the circumstances of the parties both at the time the agreement is made and in the future.

Obtaining independent legal advice is therefore essential to ensure the agreement is appropriately drafted, tailored to your circumstances and capable of achieving its intended purpose.