Imagine, you and your partner or spouse have just separated and you want to come to an agreement as to the division of the assets of the relationship. Or you and your partner are about to take the step of moving in together, or perhaps you have just been together with a while and want to ensure you each protect your respective assets and agree that in the event the relationship does not work out, you each retain what you brought into the relationship.
A question often arises as to how you can formalise these types of decisions. Often, partners or ex partners will write up their agreement and sign it, satisfied they have done enough to ensure that any agreement reached will be finalised in accordance with those intentions. Perhaps, they have even taken the extra step of writing their agreement in the form of a Statutory Declaration. Unfortunately, however, such purported “agreements” are neither binding on the parties, nor enforceable, meaning the parties have little, if any comfort, that their property matters will be resolved in accordance with that “agreement”.
There are ways in which these types of agreements can be formalised, and one such way is a Binding Financial Agreement (‘BFA’). A BFA is essentially a contract entered into by the parties that sets out what is to occur with their assets (both solely owned and joint) in the event of separation. It offers parties a degree of certainty and control over their finances and assets , avoiding potentially contentious and unpredictable outcomes of Court proceeding. In order to be binding and enforceable, a BFA must strictly comply with the relevant provisions of the Family Law Act 1975 (Cth).
A BFA can be entered into before marriage (section 90B, during marriage (section 90C) or after a divorce order is made (Section 90UD), or before a de facto relationship (section 90UB), during a de facto relationship (section 90UC), or after a de facto relationship ends (section 90UD).
Some of the formality requirements for a BFA include:
- The agreement must be in writing;
- It is signed by all parties;
- Before signing, each party has been provided with independent legal advice as to the effect of the agreement and its advantage and disadvantages;
- The legal practitioner providing the independent legal advice provides their client with a signed statement confirming the advice was provided; and
- A copy of the above statement is also to be given to the other party or their legal representative.
It is also important that the parties make a full and frank disclosure as to their financial position, which often involves an exchange of financial documents including payslips, taxation returns, bank statements, superannuation statements and documents relating to businesses, partnerships and trusts etc.
The Court is not involved in the drafting and execution of BFA’s, however might be required to determine circumstances in which a BFA might be set aside. The Family Law Act provides that a BFA can be set aside include (but are not limited to):
- It was obtained by fraud (and importantly noting this can include non-disclosure of a material matter);
- If it was entered into for the purposes of defrauding or defeating a credit or with reckless disregard to a creditor’s interest;
- Where the BFA is void, voidable or unenforceable;
- If circumstances have arisen singe the BFA was entered into making it impracticable for the agreement to be carried out;
- If there has been a material change in circumstances (relating to the care, welfare or development of a child) and as a result hardship would be suffered; and
- Where a party has engaged in unconscionable conduct.
Benefits of a BFA
- Certainty and Control – For parties entering into a BFA early on in their relationship, it can provide certainty and control over individual assets, bringing protection and peace of mind. For separated couples, by coming to agreement outside of Court, parties maintain certainty and control over their financial affairs and assets.
- Cost and Time Efficiency – BFA’s can help to avoid lengthy and costly Court proceedings. They can also help to reduce the emotional and stressful impact of litigation.
- Preservation of Relationships – By minimising conflict, BFA’s can assist in preserving an amicable relationship for separated partners (which is important where children are involved).
- Tailored Solutions – BFA’s offer flexibility and can include provisions around spousal maintenance, superannuation and the treatment of specific assets.
Risks and Challenges of a BFA
- Risk of Invalidity – as mentioned above, there are limited circumstances in which a BFA might be challenged and set aside by the Court. It is important to ensure your BFA is drafted carefully and complies with the relevant provisions of the Family Law Act.
- Costs of Preparation – while people can often be reluctant to incur the costs of negotiating and preparing a BFA, these costs will generally always be significantly less than if they find themselves in a protracted Court proceeding. Think of a BFA as an “insurance” of sorts.
- Potential Disputes – while one of the main aims of a BFA is to reduce the potential for disputes, disagreement can still arise, particularly where there is a material change in circumstances that was not considered at the time the BFA was prepared.
BFA’s play a vital role in managing financial relationships in Australia. They offer couples a means to control their financial future, providing certainty, efficiency, and tailored solutions. However, the complexity of drafting a valid BFA and the potential for challenges means that careful consideration and legal advice are essential. By understanding the legal requirements and potential pitfalls, couples can make informed decisions about whether a BFA is right for them and how to structure their agreement to ensure it is robust and fair. As the legal landscape continues to evolve, staying informed and seeking expert legal advice will remain crucial for anyone considering a BFA.