What is a Binding Financial Agreement?
Binding Financial Agreements 101 – What do I need to know???
A Binding Financial Agreement (“BFA”) is a legally binding agreement which deals with the division of parties’ assets, liabilities, superannuation and financial resources outside of court.
BFAs can deal with the whole of your property and finances, or they can be limited to one aspect only such as spousal maintenance.
BFAs can be entered into by both married or de facto couples, and can be made:
- Prior to marriage or cohabitation (often referred to as a Prenup);
- During the marriage or de facto relationship;
- Following separation; or
- Following a divorce order being made.
BFAs are governed by Part VIIIA and Division 4 of Part VIIIAB of the Family Law Act 1975 (Cth)
What are the requirements for a Binding Financial Agreement to be binding?
In order for the BFA to be binding, both parties must sign the agreement.
Prior to the signing of the agreement, both parties must receive independent legal advice from a solicitor in relation to:
- The effect of the agreement on their rights;
- The advantages of the agreement; and
- The disadvantages of the agreement.
Each party must receive a statement of independent legal advice signed by the solicitor who provided the party with the advice, confirming that the advice was given, either before or after the agreement has been signed. This statement must also be provided to the other party or their solicitor. Often, the statement of independent legal advice is annexed to the agreement itself.
At times parties desire to resolve their financial matters without having engaged a solicitor, however in order for a BFA to be binding and enforceable, independent legal advice must be obtained.
If the BFA is entered into following separation, a separation declaration must be signed by either of the parties and attached to the BFA unless the agreement was made after a divorce order.
Lastly, the BFA must not have been terminated or set aside by the court.
What are the advantages of a Binding Financial Agreement?
There are various benefits of entering into a BFA, which include:
- If entering into the agreement before or during a marriage or de facto relationship, parties have the benefit of planning how their property and finances will be divided prior to a separation taking place. This provides certainty and peace of mind in the event of a separation.
- Having the ability to resolve financial matters outside of court, which can often be a costly, daunting and a lengthy process which parties may seek to avoid.
- Reaching a settlement based on the terms agreed to by the parties, rather than being bound by a decision made by the court.
- Having the ability to move away from the principles of justice and equity in family law court settlements and crafting a more personalized agreement.
- Precluding either party from making a claim against the other in the future and providing finality (unless the agreement is set aside- see below).
What are the disadvantages of a Binding Financial Agreement?
Some disadvantages of entering into a BFA can include:
- If entering into the agreement before or during a marriage or de facto relationship, either parties’ circumstances may change after separation, and this may not be taken into account in the agreement, resulting in a dissatisfactory outcome.
- Once fully executed, the terms of the agreement cannot be altered unless the parties enter into a new agreement, terminating the previous BFA.
- As BFAs are entered into outside of court, the terms of the agreement will not be approved by the court as being a just and equitable settlement and may be subject to being set aside by the court if challenged by a party.
When can a Binding Financial Agreement be set aside?
There are various circumstances in which a BFA can be aside, and these include some of the following:
- The agreement was obtained by fraud.
- The agreement is void, voidable or unenforceable, for example if the binding requirements were not fulfilled.
- Circumstances have arisen since the agreement was made that make it impracticable for the agreement or part of the agreement to be carried out.
- Since the agreement was made, a material change in circumstances that relate to the care, welfare and development of a child of the relationship has occurred. As a result of the change, the child, or one who has caring responsibility for the child, a parent, person with residence order or specific issues order in relation to the care, welfare and development, or a party to the agreement will suffer hardship if the court does not set the agreement aside.
- A party to the agreement engaged in unconscionable conduct in the process of developing the Financial Agreement, for example duress, this is more commonly a concern in agreements being entered into before a marriage.
Summary
Overall, a BFA is an effective way to deal with property and finances if the parties are able to reach an agreement outside of court. If the parties have followed the requirements to ensure that the agreement is binding, such as obtaining independent legal advice from a solicitor prior to signing, there will be less risks associated with the agreement being challenged.
It is important to receive advice as to whether a BFA is right for your particular situation. If you have recently separated or wish to crystalize how your property and finances will be divided in the event of a breakdown of your marriage or de facto relationship, please reach out to the Family Law Team at DSA Law on (03) 8595 9580 we are here to help.