Should you have a Binding Financial Agreement?

Written by Dannielle Wright

Edited by Gabriella Ferraro

When entering into a marriage, or de facto relationship, it is important to consider your financial position in the event of a relationship breakdown. One way you can protect your assets is by entering into a Binding Financial Agreement (BFA). In America, this is known as a prenuptial agreement.

A BFA is a legally binding contract that allows parties to reach their own agreement with respect to the division of property and spousal maintenance in the event of a relationship breakdown.

In Australia, a BFA can be entered into before, during or after a marriage or relationship to provide clarity on financial matters or to formalise the division of property.

In order for a BFA to be enforceable, it must satisfy the following criteria:

• be in writing and signed by both parties;

• each party must have received independent legal advice prior to signing the BFA;

• the BFA must contain a statement from each party’s legal representative confirming that advice was provided;

• the BFA must not have been obtained through fraud, duress, or undue influence; and

• the BFA must include full and frank disclosure of each party’s financial situation.

Depending on your circumstances, entering into a BFA may be advantageous as:

1. If valid, a BFA can remove any uncertainty which may exist by virtue of the discretionary power of the Court to determine financial matters under the Family Law Act 1975;

2. A BFA can serve as a safeguard for pre-existing assets against potential claims by the other party in the relationship. This becomes especially crucial when there is a notable disparity in the parties financial standing. In certain situations, one party may have acquired assets prior to when the relationship began, without any financial contribution from the other party. As such, it is reasonable for them to attempt to preserve those assets exclusively in the event of a separation.

3. A BFA can outline how joint property can be acquired and dealt with if separation occurs;

4. A BFA can save the parties’ time and costs of proceeding to a Court hearing, where all issues may be before the Court including property and spousal maintenance.

5. Unlike Court proceedings, the terms of a BFA remain private and confidential.

However, it is important to note that there are several notable disadvantages of entering into a BFA. This includes:

1. Whilst BFA are legally binding, they can still be set aside by the Court in certain circumstances. For instance, a Court may set aside an agreement if there was a failure to disclosure significant assets, if one party was coerced into signing, or if the agreement is found to be unreasonable.

2. It is possible that you are agreeing to an unfavourable property settlement than what could otherwise be expected at Court and in accordance with the principles of the Family Law Act 1975;

3. The terms of the BFA are unable to be varied under any circumstances and can only be terminated the by an agreement with the same level of formality as entering into the agreement and only after obtaining independent legal advice;

4. BFA cannot deal with matters relating to parenting arrangements or child support.

If you are considering entering into a Binding Financial Agreement, or require legal advice with respect to the division of property, please do not hesitate in reaching out to our team. Our highly experienced team is well-equipped to assist you with your inquiries.