Agree up-front, and avoid potential disputes and costs down the track.
What is a Binding Financial Agreement?
A ‘Binding Financial Agreement’ (or ‘BFA’) is a way for couples (married or de facto) to put in writing what they would like to happen to their property if their relationship breaks down, or if their relationship has already broken down.
Why may I need one?
One of the main benefits of a BFA is that it allows you to make decisions ahead of time, and potentially avoid a legal dispute later on.
It can avoid arguments and suspicion between you and your partner about money.
It can avoid family infighting between:
- A new partner and your children (i.e. the new partner’s step children); and
- A new partner and your parents.
A BFA does not involve the Court, and therefore can avoid costs and public disclosures.
Who is likely to want one?
Financial Agreements are particularly useful where:
- One partner has significant assets prior to entering into the relationship;
- One partner has children from a previous relationship, and wants to protect the children’s inheritance;
- One partner expects to inherit a lot of money;
- One partner owns or will inherit a family farm or business; and
- Significant gifts have been made by one partner to the other before or during the relationship – to ensure that these are taken into account in the event of separation.
What can a Financial Agreement cover?
A Financial Agreement can deal with the financial matters of the parties to the agreement.
The meaning of this term is slightly different for married couples and de facto couples.
For married couples, these matters are:
- Splitting property and other financial resources of either or both of parties;
- Spousal maintenance from one party to the other, either during the marriage, after divorce, or both;
- Matters incidental or ancillary to those above or ‘other matters’, (this may include provision for child support).
There are fewer ‘financial matters’ that may be covered for a de facto couple. Particularly, a Financial Agreement for a de facto couple cannot cover the maintenance of a party during the de facto relationship, nor ‘other matters’.
A Financial Agreement does not have to deal with all of the couple’s property – it can deal with only part of it, with the remaining property being dealt with under the general legislative provisions.
What is ‘Property’?
Property has a broad definition and can include almost anything that can be valued. It usually includes land, money, superannuation, vehicles, household items and other goods, and also other things such as insurance policies, potential compensation claims, inheritances and other entitlements.
A Financial Agreement may contain provisions relating to your superannuation.
What is ‘Spousal Maintenance’?
Spousal maintenance is a regular ongoing payment made by one partner to the other.
For a BFA relating to spousal maintenance to be valid, it must specify both the person for whom maintenance is to be provided and the amount to be provided. You can agree in a BFA that no spousal maintenance will be payable.
What is a ‘de facto’ relationship?
The definition of ‘de facto relationship’ is different depending upon the area of law.
For family law property issues, a de facto relationship is one where you are in a relationship as a couple and living together on a genuine domestic basis. This is considered by reference to a number of factors (none of which is determinative). It is possible for you to be in a de facto relationship even when you are legally married to someone else, or if you are also in another de facto relationship – i.e. you can have more than one spouse.
Living together is enough to allow you to enter into a BFA (either before, during or after the co-habitation).
What can’t a Financial Agreement Cover?
A BFA cannot cover parenting/child custody matters – i.e. which parent a child lives with, visitation rights, etc.
As a general rule, child support is not dealt with through a BFA. This is a whole area in itself, but there are similar agreements in this area, known as ‘Children Support Agreements’.
A BFA also cannot determine how the parties deal with any property or financial resources that are acquired after the marriage or relationship has ended. It can only apply to the property and resources owned at the date the agreement is made, or that is later acquired during the course of the relationship.
When can I enter into a Financial Agreement?
A Financial Agreement for a married couple can be entered into either before marriage, during the marriage or after the marriage breaks down.
Similarly, a Financial Agreement for de facto partners can be entered into before co-habitation, during co-habitation or after the relationship has broken down.
What do I need to do to make a valid Financial Agreement?
There are a number of requirements that must be met for the BFA to be binding, including:
- The financial agreement must be in writing;
- It must refer to the correct part of the legislation as being the authority under which it is made;
- It must be signed by all parties, but only after each party was given independent legal advice about its rights; and
- It must be accompanied by a certificate from the lawyer to each party regarding the independent legal advice.
Both parties must make a full disclosure of all of their assets. Non-disclosure can void the BFA.
See here for more information on what is involved in making a BFA.
Do you need to involve a lawyer?
The short answer is yes.
You can draft your own agreement, but at least two lawyers will need to be involved in providing independent legal advice to each party, so it is often more efficient just to get the lawyers involved at the outset. BFAs are also quite a complex document to get right and must strictly comply with the legislation.
When Can a Financial Agreement Be Challenged?
A financial agreement can be challenged on a number of grounds – but the intent of parliament was for them to stand up to challenge.
Failing to Satisfy Statutory Requirement
If a Financial Agreement does not comply with the statutory requirements, it can be challenged as being invalid. However, the Court still has the power to order that a financial agreement is nonetheless binding, if it has been signed by all parties and it would be unjust for the agreement not to be binding.
Court Order to Set Aside a Financial Agreement
A financial agreement may only be set aside by an order of the Court. Generally, the Court may only set aside a financial agreement if:
- There has been some dishonest conduct – such as material non-disclosure of assets;
- The agreement is for an improper purpose – trying to defeat creditors;
- The agreement is defective; or
- The circumstances have changed which would make it unfair to hold the parties to what was agreed – for example, the couple have since had a child to whom care needs to be provided.
Common Law Principles of Contract
A financial agreement is a form of ‘contract’. Therefore, the common law grounds for challenging contracts are also applicable to financial agreements, including for example for lack of certainty, mistake, duress, etc. These common law grounds seem to be incorporated into the available statutory grounds.
What happens if I don’t have a Financial Agreement?
If a couple (either married or de facto) do not have a BFA, then there are essentially two options upon the breakdown of their relationship.
Firstly, the parties can agree on a property settlement – this is a cheaper and quicker alternative than going through the Court system to obtain property orders (see below).
Where the parties agree how to divide their property and the arrangement is fairly simple, they can generally complete an application for consent orders (available either online or from the Family Court). These consent orders are then subject to Court scrutiny, and will be rejected if the Court considers that they are not “fair, just and equitable”.
The Court has no input as to whether a BFA is just and equitable. By entering into a Financial Agreement, you are effectively precluding the court from any involvement in relation to your financial and property issues.
Where there is no Financial Agreement and the parties cannot agree on how to divide the property, the Family Law Act 1975 will apply in working out a property settlement or spousal maintenance for a marriage or de facto relationship which breaks down.
For de facto partners, there is an additional ‘gateway’ test that they must satisfy before the Family Law Act will apply. There are 4 alternative tests – the most common of these are that that de facto relationship has been in existence for at least 2 years (either consecutively or cumulatively) or that there is a child of the de facto relationship. This is in addition to the co-habitation test.
This means that if a couple have been living together for less than 2 years and do not have a Financial Agreement, then the Family Law Act will not apply to apportion the property of the parties.
Property Settlement Proceedings
Where the Family Law Act applies, there is a four-step process employed by the Court:
- Identify and value the property of the parties;
- Consider the contributions each party has made;
- Consider the other relevant factors and circumstances of the parties;
- Consider whether the proposed order is just and equitable.
As a general rule, you have 12 months from the finalisation of your divorce to apply for property orders, or within 24 months of the end of your de facto relationship.
A party to a marriage or de facto relationship will have a right to receive reasonable spousal maintenance from the other party if the first party is unable to support themselves adequately. In making orders for spousal maintenance, the Court will consider a wide range of factors, including the age and health of the parties, their income, property, employment prospects, commitments and many other things.
As a general rule, you have 12 months from the finalisation of your divorce to apply for maintenance, or within 24 months of the end of your de facto relationship.
What should I do if I want to enter into a Financial Agreement?
If you are considering entering into a BFA, then this should be discussed with your partner as early as possible. These agreements can be a sensitive topic and it is best to deal with them early.
Once you have decided that you will enter into a BFA, each party must fully disclose the extent of their assets, and should obtain their own independent advice, to ensure that each party is fully informed of their rights and risks under the agreement.
For more information or assistance in putting in place a BFA, please call Marie on 1300 654 590 or email her at email@example.com.