In Australia, a Binding Financial Agreement (BFA) is a legal contract that outlines how property arrangements and financial matters will be managed if a relationship ends.
These agreements can provide clarity and security for both parties, ensuring their financial interests are protected. This article will delve into the various aspects of BFAs under Australian law, referencing the Family Law Act 1975 and related provisions.
What is a Binding Financial Agreement?
Binding Financial Agreements (BFAs) are formal contracts under Australian law that enable couples to clarify their financial rights and responsibilities. This form of agreement may be used where one or both parties seek to protect their assets in the event of a separation or as a practical tool for couples that wish to avoid court battles if things fall apart later on.
Financial agreements are covered under the Family Law Act 1975 – Part VIIIA for married couples and Division 4 of Part VIIIAB for de facto couples.
Stages of a Relationship
BFAs can be drawn up at various stages of a relationship:
- Before Marriage (Prenup): Many couples establish a BFA before tying the knot to set clear expectations.
- During a Relationship: A couple may draft a BFA while they are still together, particularly if their financial situations change or they want to address future inheritances.
- After Separation: In some cases, couples may create a BFA after they have separated to delineate how their assets will be divided.
They can be made when:
- A couple enters into a marriage or a de facto relationship (prenuptial agreement)
- During a relationship (cohabitation agreement or postnuptial agreement)
- At the end of a relationship, in place of Consent Orders (separation agreement or divorce agreement)
BFAs provide a level of security for both parties by establishing clear expectations regarding financial matters. Being able to make a fair and comprehensive financial agreement when a relationship is going well can minimise the chances of court proceedings further down the line.
Who Can Use Binding Financial Agreements?
BFAs are accessible to various individuals, including:
- Married Couples: Those preparing for marriage can use BFAs to protect their individual assets and set out financial arrangements for the future.
- De Facto Couples: Couples living together in a relationship that resembles marriage can also utilise BFAs to safeguard their financial interests.
- Individuals in Second Marriages: Those entering a new relationship after a divorce may wish to protect existing assets or ensure that future inheritances are passed on to children from previous marriages.
- People with Family Wealth: Individuals with significant family wealth may want to create a BFA to protect these assets for future generations.
- Couples with Large Disparities in Wealth: When one partner has considerably more assets than the other, a BFA can help ensure a fair financial arrangement.
Consider Ahmed and Elisa. Ahmed has a family business valued at $1 million and one child. At the same time, Elisa owns a family property she wishes to keep in the family and has a daughter from a previous marriage. They decide to draw up an agreement to clarify how their property interests will be handled if their relationship ends, ensuring both parties are protected.
What Can Binding Financial Agreements Cover?
BFAs can cover a range of financial matters, including:
- Assets Property Interests: How property, investments, and other assets will be divided.
- Maintenance Provisions: Financial support arrangements between partners after separation.
- Superannuation Interests: Allocation of retirement benefits and superannuation balances.
- Debts: Allocation of financial obligations incurred during the relationship.
- Spousal Maintenance: Arrangements for financial support between partners.
- Future Inheritances: Provisions for expected inheritances to ensure they remain within a family or are allocated to specific individuals.
- Family Trusts: Provisions related to the management and division of family trusts or other financial vehicles.
Sam and Maya are just starting out in their relationship and are in their early thirties. Both are high earners with new businesses but have no considerable family wealth assets. They decide to draw up a BFA as a proactive measure. By doing so, they can enjoy their new life together while having a plan in place that addresses the worst-case scenario without the stress of financial settlements looming over them. They understand that as their circumstances change, or if they have children, they will need to update their agreement but decide to put something in place early on and review it every 5-10 years.
Updating or Terminating Binding Financial Agreements
BFAs can be updated or terminated, but this process should be approached with care and can be costly. A termination agreement or a replacement document may be required to nullify the existing BFA. Changes may become necessary due to material changes in circumstances, such as the birth of a child or significant alterations in income. Legal fees for lawyers drafting these updates should be taken into consideration.
BFAs may be overturned in specific situations, including:
Lack of Informed Consent: If one party signed the BFA under duress or without fully understanding the implications due to language barriers or lack of legal advice.
Material Non-disclosure: If one party did not disclose their financial situation accurately during the drafting of the agreement.
Fraudulent Intent: If the BFA was created to defraud creditors or evade financial responsibilities.
If a BFA is broken or terminated, parties may still pursue court action for property settlements through the Federal Circuit and Family Court of Australia.This means that even with a BFA, the Federal Circuit and Family Court of Australia can enforce property arrangements based on the principles of fairness.
What Makes A Financial Agreement Binding?
A Binding Financial Agreement (BFA) is considered binding in Australia when it meets the following criteria:
- It must be in writing.
- Both parties must receive independent legal advice.
- Full financial disclosure is required from both parties.
- The agreement must be entered into voluntarily, without coercion.
- Must comply with the Family Law Act 1975.
- It should include specific clauses about property interests and maintenance provisions.
- Registration is not necessary, but legal advice is essential for the validity and protection of rights.
Final Thoughts
Binding Financial Agreements are essential for couples looking to protect their financial futures. By clearly outlining the rights and responsibilities of each partner, BFAs can help mitigate disputes and provide peace of mind. A BFA can offer clarity and security if you are in a new relationship, entering a second marriage, or want to safeguard your assets.
If you are considering a BFA, seeking independent legal advice is crucial to ensure the agreement is valid and meets the Family Law Act 1975 requirements. The relevant sections for BFAs include Section 90B (for married couples) and Section 90UB (for de facto couples), which outline the requirements for entering into such agreements.
Taking proactive steps today can foster a positive financial future for you and your loved ones, ensuring that your financial arrangements are in order should life take an unexpected turn. Please get in touch with our team for more advice on financial agreements.