Binding Financial Agreements
By Dr Steve Cohen
A Binding Financial Agreement (also known as a BFA or a “prenup”) is an agreement between couples (married or de facto) about how property and finances will be divided should their relationship break down.
Binding Financial Agreements can be entered into before, during or after a relationship or marriage has broken down. The BFA needs to be carefully drafted so that it complies with all legal requirements, otherwise it may not be enforceable, and the Family Court may set it aside.
Most importantly, for a BFA to become enforceable, both you and your current (or former) partner require independent legal advice.
By entering into a BFA you can avoid significant financial and emotional costs associated with legal proceedings through the Family Court.
1. Should I get a BFA?
No one can tell you whether you should enter into a BFA. Lawyers can provide you with advice based on their experience and knowledge of the law, but ultimately the decision to enter into a BFA with your partner is up to you.
You may want to consider a BFA if:
- you own or part-own a business
- you have received or are likely to receive a large inheritance
- you expect your income to increase substantially
- you are much wealthier than your partner
- you or your partner plan on undertaking full-time study at the expense of your job
- you own valuable property, e.g. artwork, land, shares
- you are financially responsible for a third party (e.g. child/ren and/or parent/s)
- you have children from a previous marriage and you don’t want your new partner to have an interest in the house they grew up in should you separate
2. What can be included in a BFA?
Usually BFA’s include the following details or provisions:
- the assets and liabilities that you and your partner own and how these assets were accumulated
- how the matrimonial assets are to be divided in the event of separation
- whether spousal maintenance (if applicable) is to be paid in the event of separation
- what happens to the assets of the marriage/relationship if the parties have children
- what happens in the event of an inheritance
3. Will a BFA mean that we are unable to access the Family Court to assist in the distribution of matrimonial assets in the event of a separation?
Although a BFA may be in place, you can still apply to the Family Court to enforce the terms of the BFA (i.e. to distribute assets in accordance with the terms of the BFA) if your former partner is uncooperative. The Family Court will only assist if it considers the BFA to be binding.
Whether a BFA is binding on the parties is a question of law that only the Court can determine. There are a number of cases which inform lawyers how to draft BFA’s in such a way that it will withstand the scrutiny of the Courts.
Even if a BFA is technically compliant, it may still be set aside on the grounds of undue influence, mistake, fraud and misrepresentation. The involvement of a lawyer may eliminate or substantially decrease this risk.
4. What if I do not want to enter in a BFA?
If your relationship ends and you do not have a BFA (or an enforceable BFA) in place, then the Family Law Act (if you are married) or the Family Court Act (if you are a de facto in WA) will govern the way that the Court will approach a division of property between you both. This will be based on principles of equity and fairness and may mean that you will be more disadvantaged than if you had entered into a BFA (i.e. you may not necessarily get the result that you want) or vice versa.
You should also bear in mind that court proceedings are incredibly stressful, time consuming and expensive all of which may be avoided with a BFA.
5. Can anyone enter into a BFA?
Any couple (including same sex couples), de facto or married, can enter into a BFA.
6. What is not covered in a BFA?
You can’t address parenting issues such as custody, contact or child support payments in a BFA.
If you have separated, then the Court encourages parents to work together to implement arrangements for the children by making a parenting plan, which is a written agreement between you and your former partner. For more information on parenting plans, see Family Law
You should also avoid ‘lifestyle clauses’, including placing demands upon your ex/partner, such as how to raise the children, what to wear in public, where to live or how to spend money. These clauses are likely to be voidable and may invalidate the entire BFA.
7. How do we sign our BFA?
In Australia, each party to a BFA must receive independent legal advice. This is to ensure that each party receives full and frank advice as to the advantages and disadvantages of entering into a BFA. Both lawyers must each sign a certificate attached to the BFA to say that they have provided independent legal advice to one of the parties. Without this certificate, a BFA will be invalid. A BFA must also be signed by all parties.
8. Consent Order
After separation you can also address your property settlement without going to Court by filing Consent Orders with the Court. Unlike a BFA, a Consent Order can also cover parenting issues. The parties are not required to obtain independent legal advice in respect to Consent Orders and orders will only be made if the Court decides that the Consent Orders are fair and/or reasonable. This can be in stark contrast to a BFA, because the terms of a valid BFA may not necessarily be considered reasonable or fair to the Court.
For more information on Binding Financial Agreements, Consent Orders, Parenting Plans or any other family law matter please contact our office to make an appointment with one of our experienced family lawyers on 6162 8271.