Binding Financial Agreements
Binding Financial Agreements (known as BFA’s or sometimes a Pre-nub where done during a relationship) is a legal agreement that sets out the way that some or all of the assets of two parties will be divided in the event of separation. It can also deal with the issue of spousal maintenance.
Binding Financial Agreements may be entered into:
- Before getting married/entering a de facto relationship;
- While married/in a de facto relationship;
- After separation but before divorce;
- After divorce/breakdown of the de facto relationship.
Where a Binding Financial Agreement is done during the relationship, it sets out the financial arrangements that are intended to happen if the relationship comes to an end. This is quite a difficult and complex type of agreement because you are not only trying to protect your current wealth but your future wealth as well, and to do that your lawyer must ‘crystal ball’ what the assets/financial resources/financial circumstances of the parties may be in the future, what clauses will be needed to protect those assets/resources, and the circumstances of the parties at the end of the relationship. This is why, where a Binding Financial Agreement is done during a relationship, it is costly, because the Agreement intends to bind the parties to financial decisions in the future.
If your Binding Financial Agreement is to be binding in the future, and upheld if it is challenged, it is extremely important that you update it regularly to reflect the current assets of the parties and each party’s financial and life circumstances (e.g. if a party stops working or if you have children).
Where a Binding Financial Agreement is done after separation, it sets out how the assets, liabilities and superannuation in existence at that time, are divided. It is more common, and usually better to do a consent order to legally formalise the division of assets after separation. However, in some circumstances a Binding Financial Agreement will be better in the circumstances of your particular case. You should seek advice from an experienced family & divorce lawyer about which agreement is right for you.
If you have signed a Binding Financial Agreement during a relationship, this will generally determine the way your assets are divided after you separate and you lose your right to dispute the division of the assets set out in that Agreement. If there is a dispute in future about how the assets are to be divided between you and your former partner, in circumstances where you have a Binding Financial Agreement, in certain limited circumstances you may be able to seek that the Binding Financial Agreement be overturned in order to reclaim your right to seek a division of assets under the provisions of the Family Law Act 1975. You should seek advice about the specific circumstances of your case, if you believe you may have a good reason to seek that your Binding Financial Agreement be set aside.
Fixed Fee Binding Financial Agreement
We offer fixed fee Binding Financial Agreements. We recommend that you contact us to book a reduced rate initial consultation with one of our experienced Brisbane Family & Divorce Lawyers to obtain advice in relation to your individual circumstances. We will provide you with a fixed fee quote tailored to your case.
When to consider a Binding Financial Agreement
It has taken you years of hard work and effort to accumulate your assets.
It is important that when you enter a committed relationship, that is likely to be long term, that you take steps to protect your wealth and your assets.
You might consider entering into a (Pre-nuptial) Binding Financial Agreement when:
- You have more money and assets than your partner at the commencement of your relationship;
- You have children of a former relationship and you want to protect their interests in your assets in the event of separation;
- You may be entitled to a gift or an inheritance at a later date;
- You receive significant distributions from a Trust that you want to protect;
- You own / have an interest in a family business that you want to protect;
- You seek to agree in advance upon the division of your assets to avoid a dispute and the potential of court down the track.
What are the benefits of a Financial Agreement?
- To protect yourself against the other party making a claim against your assets in the future by legally formalising the division of your assets;
- You can agree to a division of assets which is not in line what what a Court would consider ‘Just & Equitable’ i.e. you ‘opt out’ of the Family Law definition of what is equitable, meaning a party can agree to receive less/more than what they would otherwise be entitled to under the Family Law Act;
- To avoid having to pay stamp duty;
- If you are in a relationship, you can pre-plan for the division of your assets. This gives you certainty about your future and less stress if/when the relationship breaks down about what will happen and who will get what;
- In circumstances where one party has brought in the majority of the assets, you will have some comfort that these assets will be protected in future from the other party (although we can never guarantee protection of your assets 100% through a Binding Financial Agreement, but it is the best way to protect yourself);
- You ensure that your estate is protected. All assets you own will be certain to pass pursuant to your will to your family as intended and you aren’t stripped from you by your former partner.
However, most of the above benefits can be secured by formalising your asset division through a consent order (save for if you are still in a relationship and want to pre-plan for separation). A consent order is the type of agreement we recommend to our client’s in 9 / 10 cases.
What are the disadvantages of a Binding Financial Agreement?
A Binding Financial Agreement is not signed off by a court and it is not scrutinised by anyone to ensure it is fair/equitable. A Binding Financial Agreement done during a relationship (prenuptial agreement) needs to be updated frequently if circumstances change, to ensure your agreement remains binding and enforceable. Whilst a Binding Financial Agreement is the best way to pre-plan for separation and protection of your assets, there are no guarantees that a Binding Financial Agreement will protect you if you separate. Binding Financial Agreements can therefore be more costly if they are not done right.
When is your Binding Financial Agreement enforceable?
A Binding Financial Agreement is only binding, under section 90G (married) or s90UF (de facto) of the Family Law Act, where:
- The Agreement is signed by each of the parties;
- Before signing the Agreement each party has been provided independent legal advice in relation to the effect of the agreement on the rights of the parties and the advantages and disadvantages of the agreement;
- After signing the agreement, each party must be provided with a signed statement from their lawyer confirming receipt of the advice;
- The statement of legal advice for each party is exchanged between the parties (usually it is attached to the agreement);
- The Agreement has not been terminated or set aside by a Court.
Except in circumstances where the parties have already separated/divorced, a separation declaration should be signed by one of the parties after separation, in order to demonstrate that the parties have separated and that there is no reasonable likelihood that cohabitation will be resumed. Only once the separation declaration is signed, will the terms of the Binding Financial Agreement be triggered: s90DA & s90UF Family Law Act.
The agreement must still be served on the superannuation fund for a superannuation split to take place, in a similar manner to a consent order agreement.
Superannuation splitting in Financial Agreements
It is important to note that pursuant to section 90XP and s90XQ of the Family Law Act, you cannot do a Binding Financial Agreement that involves a superannuation split in excess of the low rate cap (in 2021-2022 the low rate cap amount is $225,000) unless the parties have been separated and have been living separately and apart for 12 months and there is no reasonable likelihood of cohabitation being resumed. Click the link to our article on Superannuation Splitting in Financial Agreements to learn more about low rate cap amounts.
Click the link to read more about the additional requirements of superannuation splitting agreements by way of Binding Financial Agreements.
When can a court set aside a Binding Financial Agreement?
Under section 90K and section 90UM of the Family Law Act, the Court can set aside a Binding Financial Agreement in various circumstances. Some of the most common reasons Binding Financial Agreements are set aside are as follows:
- The Agreement was obtained by fraud (including non-disclosure of a material matter);
- The Agreement was entered into to defraud/defeat a creditor or with reckless disregard to the interests of the creditor.
- The agreement was obtained for the purpose of defrauding another person who is a party to a de facto relationship with the party
- The Agreement was obtained by duress such that the person was not operating of their own free will when entering into the agreement (for example, where a BFA is signed under threat of not getting married/moving in together, or where one person is at a position of special disadvantage – for example, where one person is pregnant and feels they have no choice but to sign to receive financial support from the other party);
- Where a party fails to disclose assets relevant to the Agreement.
- Where there has been a change in circumstances since the agreement was entered into that make it impractical to carry out all or part of the Agreement;
- Where, since making the agreement, there has been a material change in circumstances relating to the care of a child of the marriage and as a result of the change in circumstances, it would result in hardship for the child or a party to the agreement (if a carer for the child) if the Agreement is not set aside.
If the Agreement is set aside, then each party is free to apply to the court for a property settlement under the Family Law Act 1975, like any other separated couple.
Can you terminate a Binding Financial Agreement?
A Binding Financial Agreement can be terminated by agreement between the parties. The termination of the Binding Financial Agreement must satisfy the same requirements of the original agreement, in that the termination agreement must be signed by both parties, each party must be provided with legal advice about the effect of the termination agreement and the advantages and disadvantages of terminating the agreement, and each party must receive a signed statement from their lawyer who gave them this advice.
A Binding Financial Agreement can be terminated by the parties entering into a new financial agreement that terminates the first agreement or if the parties draft an agreement called a termination agreement.
You should seek legal advice about your specific circumstances if you are wanting to terminate a binding financial agreement, as there are a number of facts to consider as to when a termination agreement becomes legally binding.
Effect of Binding Financial Agreement’s upon the death of either party
A binding financial agreement will continue to operate if a party to the agreement dies. It operates in favour of and is binding on the legal representative of that party.
The legal representative of a deceased party can then decide either enforce the BFA or apply to have the BFA set aside after the death of a party.
Want more information?
Clients who are put off the cost of preparing a Binding Financial Agreement often go shopping for the cheapest quote. However, beware, lawyers who often bargain priced Binding Financial Agreements, as in our experience, when it comes to the preparation of Binding Financial Agreements, you get what you pay for.
There are various cases that where Binding Financial Agreements have been set aside because of negligent drafting, failure to disclose, negligent legal advice.
Click the link to read more about Binding Financial Agreements where they have been upheld/set aside:
Contact us and book a reduced rate consultation to obtain advice in relation to your specific circumstances, as to whether or not a Binding Financial Agreement or a Consent order is right for you.
For more information on Consent Orders versus Binding Financial Agreements, click the link to view Courtney’s helpful explanation video.
We can also help prepare a Prenuptial Binding Financial Agreement to help to protect you from having to divide your assets with your partner, should you separate in future.