Binding Financial Agreements

Financial Agreements

A Binding Financial Agreement (BFA) is a term which includes a variety of different financial arrangements made during a relationship. A BFA is essentially the Australian version of a pre-nuptial agreement, it is an agreement between de facto (inclusive of same-sex unions), soon to be married or already married couples. These agreements are made either before, during or after the couple’s relationship and should specify individual assets, financial resources and liabilities and how they will be divided if the relationship breaks down.

When do Financial Agreements Become Binding?

Financial agreements are governed by Commonwealth legislation, specifically, the Family Law Act 1975 (Cth).

In order for an agreement to be binding on the two parties, there are certain requirements which must be satisfied:

• The agreement, like a contract, must be in writing and be signed by all parties to the agreement.
• The type of financial agreement and relevant section it falls under, must be specified (i.e. s90C for already married couples).
• Prior to signing, the parties must be provided with independent legal advice from a qualified practitioner about their rights and their advantages/disadvantages under the agreement. 
• The practitioner whom gives the legal advice (for both parties), must provide a signed statement of the fact, and that statement must be given to the other party or their representative. 
• The agreement must still be valid and not have been terminated or set aside by the Courts.

However, BFAs can be set aside by the Courts according to equitable doctrine of contracts. For example, an agreement can be set aside if it is found that consent to the agreement was obtained by fraud, duress or misrepresentation (deceit). Other ways an agreement can be set-aside is due to impracticality of carrying out contractual obligation and material change in circumstances.

It is also important to note that although there may be an apparent inequality in financial positions between the parties prior to entering into the agreement, the law does not require the agreement to be ‘‘fair’’. This has also been upheld in recent, binding, High Court decisions.

Financial Agreements and Third Parties

Since late 2008, third parties such as creditors, family members, family companies and trusts can be privy to BFAs. This usually occurs when one or more of the parties has significant assets and wishes to safeguard them in the event of a breakdown of the union.

Financial Agreements vs. Consent Orders

When finalising a property settlement agreement you need to choose between consent orders and a financial agreement. Points to consider when choosing include:

• Consent orders are filed in a Court. The Court will only make orders that are “fair and reasonable’’. Whereas BFAs need not be ‘‘fair’’.
• BFAs can be used to safeguard assets from future claims by spouses. 
• No judicial bodies review the BFA, nor is it registered or filed anywhere. 
• Independent legal advice is integral to BFAs (may be quite costly), consent orders can be brought to the Courts yourself.

Terminating a Financial Agreement

A financial agreement can be terminated by the parties by either signing a new financial agreement which includes a provision terminating the old agreement, or signing a written document specifically terminating the agreement (a termination agreement – which is arguably preferred).

"Sunset clauses" can be inserted within BFAs to void parts (or whole) of the agreement to allow future circumstances to be considered. If the parties seek that their agreement (or part of) be terminated at a certain time, such as after the birth of a new child, remarriage etc.; the agreement should also be drafted in divided parts, with additional clauses to apply if a certain event does or does not occur.

Our Comments

BFAs are still a fairly new way to protect the assets of the parties to a marriage or de-facto union. They are focal points to much discussion and debate, and are still currently being developed within the Courts. Thereby, the information we have provided you is a brief summation of the underlying principles. If you are considering a BFA, we strongly suggest that you use an Accredited Family law Specialist. Feel free to ask us for a referral.