Binding Financial Agreements

No one ever wants to contemplate the possibility of their relationship breaking down, but a binding financial agreement may well save you stress and expense if it does happen.  A Financial Agreement under the Family Law Act (commonly known as a Binding Financial Agreement or BFA) can be an effective tool for a number of reasons (see below).  If you are looking for a lawyer in Sydney to help with any legalities regarding your BFA, or for further information in relation to BFAs, please do not hesitate to contact our Family Law Team.

I have a question about:

  • What is a BFA?

    A BFA is a legally binding, written agreement between two or more people that complies with Part VIII to VIIIAB of the Family Law Act 1975 (Cth). It sets out the parties’ agreement as to their intended financial arrangements in the event of a relationship breakdown. The ultimate purpose of a BFA is to avoid the need of having the matter dealt with by expensive and protracted legal proceedings.

    BFAs can be made either in contemplation of a separation (which may never arise) or after the parties’ have separated.

  • Who can enter into a BFA?

    • De Facto couples
    • Married couples
    • Couples who are separated; and
    • Divorced couples;
    • BFAs can be entered into before, during or after a relationship.

  • What are the different types of BFAs?

    The type of BFA you require will depend on several factors such as whether you are already living together, your current relationship status, and whether you intend for that to change. As such, your agreement could be:

    • Pre-nuptial agreements (those made in contemplation of marriage) – often called “prenups”
    • Post-nuptial agreements (those made during the marriage either as “prenups” or separation documents)
    • Cohabitation agreements (those made in contemplation of, or during a de facto relationship)
    • Separation agreements (those made following the breakdown of a marriage or a de facto relationship)
    • Divorce agreements (those made after a divorce)

  • What does a BFA cover?

    • How property (including superannuation) and liabilities are to be divided between the parties – this can relate to their separate and/or shared property and liabilities.
    • Whether one party will pay the other any spousal maintenance after separation.
    • If you have children in the future, how these agreed arrangements may vary.
    • It is important to note that a BFA does not cover the custody access or financial support of any children within the relationship. This must be handled as a separate matter in the Family Court.

  • What are the advantages of a BFA?

    • The parties can establish some certainty now in predetermining what each would be entitled to if a separation was to occur;
    • Having this predetermined outcome may assist the overall harmony of the relationship;
    • A BFA should eliminate the expense and uncertainty of litigation;
    • A BFA can provide stamp duty exemptions if a separation occurs;
    • Under a BFA parties can make provision to legally split (equally or unequally) superannuation between themselves;
    • A BFA does not need to be lodged or registered with a family court.

  • What are the disadvantages of a BFA?

    • A BFA attempts to predict the future and this is not always achievable;
    • The “certainty” can be eroded by changes in circumstances during the relationship if the BFA is to be entered into at the commencement or during a relationship. For example, there can be a marked improvement or deterioration of a couple’s financial situation or assets can be changed so that they are held in a “non-property” way by outside control (such as trusts over which others have “effective control”).
    • The parties therefore need to monitor and reconcile the financial activities to ensure that the BFA remains current and achievable. This can become particularly relevant if the parties change the nature of, or merge, their property.  Accordingly, this may involve ongoing financial or legal advice.
    • Conversely to a point made above (as an advantage), a BFA may bring and maintain a feeling of commerciality to your relationship which actually produces a clear or underlying disharmony;
    • The BFA may result in a party receiving less than his/her entitlement under the Family Law Act if a separation occurs;
    • BFAs are not cheap; they require strict compliance and independent advice/certification. There are a number of legal firms that will not make them;
    • BFAs do not cover children’s issues;
    • BFAs can be “set aside” (declared to be void) by a family court. This usually happens if there has been a non-compliance with the formal requirements outlined in the Act, or if there has been a non (or inaccurate) disclosure of a party’s financial position, or if the BFA has been made in “unconscionable” (clearly unreasonable) circumstances.  Accordingly, BFAs may be subject to the uncertainty of a Judge’s discretionary view of the document.

  • How do I discuss with my partner the possibility of a BFA?

    • Start with an open and honest conversation in respect to finances, assets, and arrangements you would both like to see happen during the relationship.
    • Usually, a party will happily enter into a BFA to show they are in the relationship for the right reasons.
    • Discuss each of your financial goals and morals, and whether one party may want to quarantine their assets where another may wish to share them.
    • Some people say that their relationship improves with a BFA in place as there is no doubt about arrangements and moving forward each party knows exactly where they stand.
    • If you have differing views in respect to contributions and entitlements in the relationship, or if one party is against the idea of a BFA, perhaps it is time to really assess the expectations each party has going forward in the relationship and whether they are there for the right reasons, or whether the arrangement you are seeking is fair.

  • What makes a BFA "binding"?

    For a financial agreement to be binding, it must be signed by all parties.  Furthermore, all parties to the agreement must have received independent legal advice before signing the agreement.

  • Can a BFA include parties other than the parties to the relationship?

    Yes, a financial agreement can include third parties such as family members, family companies, trusts and creditors.

    When family members are involved, a financial agreement could be a way for that family member to protect any money that they may have lent the married or de facto couple.

    Those third parties will need to obtain their own independent legal advice and that could increase the costs overall. However, often given the amount of financial assistance given by third parties, those costs are often justified in the long run, based on the protection a binding financial agreement can give a third party.

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