Binding Financial Agreement in Australia

What is a Binding Financial Agreement?

A Binding Financial Agreement (“BFA”), or pre-nuptial agreement, is a document or series of documents that govern your property interests in the event of a separation during a marriage or a de facto relationship. A BFA can be entered into before, during or after a relationship. If made after marriage, the BFA must be made within twelve months of an order of divorce.

Family Law Act 1975

In Australia, BFA are recognised as legally binding documents under the Family Law Act 1975 (“the Act”). The BFA must comply with the strict formal requirements set out in the Act.

The requirements for a BFA include:

1. Disclosure of the assets and liabilities that are to be covered by the BFA and all relevant financial information (including any business owned or property owned).
2. Before signing, both parties must obtain independent legal advice about:

• the effect of the agreement on their rights, and
• the advantages and disadvantages of the agreement.

3. The BFA must be freely entered into by both parties.
4. The BFA must be signed by both parties, and
5. You must have a certificate showing that you have received free legal advice about the BFA. If you do not have this certificate, the BFA may not be binding.

For a BFA to be legal and binding, it must comply with the strict formalities set out in the Act, particulars the requirement for each party to enter the BFA of their own free will and be fully informed.

Can a Court set aside Binding Financial Agreements?

BFA’s can be set aside by the Family Court if they are not carefully drafted and properly executed. The most common reasons BFA’s are set aside are because:

1. The BFA was obtained by fraud or duress (for example, requiring someone to sign the BFA shortly before the parties’ wedding under threat of not going through with the wedding).
2. A party failed to disclose assets or information relevant to the BFA.
3. The BFA was entered into to defeat or defraud a creditor or with reckless disregard to the interest of a creditor.
4. There have been significant changes to either or both parties’ circumstance which makes it impractical to carry out the BFA.
5. Since the making of the BFA, there has been a change in circumstances such as those relating to a child if it would result in hardship for the child or their carer if the Agreement is not set aside.

If the BFA is set aside, then each party is free to apply to the court for a property settlement, like any other separated couple. The law of contract is applied when courts consider the enforceability of BFA’s. Specialist legal advice is essential any of the parties wants to maximise their chances of having a valid and biding BFA.  

Terminating Process

A BFA can be “terminated” in one of two ways:

1. The parties enter into another financial agreement, provided that a specific provision is included in the new agreement stating that the former agreement is terminated; or
2. The parties can enter a “termination agreement” pursuant to section 90J (for married couples) or section 90UL (for de facto couples). As with the original BFA, for a termination agreement to be binding and enforceable, it must be signed by all parties to the agreement, and each of the parties must have received independent legal advice with respect to the termination agreement.

Summary

A Binding Financial Agreement can be a cost-effective way to safeguard assets you have worked hard to accumulate, protect your future income or inheritance, and ensure that you, and any children, are financially supported in the event of an amicable or non-amical relationship breakdown. However, it’s crucial to understand that BFAs are complex legal documents that require expert family law advice. BFA must be specifically tailored to the individuals involved, which means your lawyer should offer both strategic insight and careful attention to detail.