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Binding Financial Agreements, often colloquially known as BFAs are agreements made by couples about the financial arrangements should their relationship break down. Under the Family Law Act 1975 (Cth), BFAs provide a way for parties to agree on how their property and financial resources should be distributed upon the breakdown of their marriage or de facto relationship. These agreements can be entered into before, during, or after a marriage or de facto relationship.
What is a Binding Financial Agreement?
A BFA is a private agreement between couples that sets out the division of their assets and financial resources in the event of separation or divorce. Unlike court orders, these agreements provide a way to circumvent the potentially costly and public court processes. BFAs can cover:
- Division of property and financial resources.
- Maintenance of one of the parties during and after the relationship.
- Any other incidental issues.
Legal Requirements for a BFA
For a BFA to be legally binding, several stringent requirements must be met:
Written Form: The agreement must be in writing.
Independent Legal Advice: Both parties must have received independent legal advice before signing the agreement. This advice must cover the effect of the agreement on the rights of that party and the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement.
Legal Advisor’s Declaration: There must be a signed statement by the advising lawyer stating that the aforementioned advice was given. This is also known as a certificate of solicitors advice. This is a similar process to the certificate that we provide in giving banking guarantor advice.
Voluntariness: The agreement must be entered into without coercion, undue influence, or fraud.
Advantages of BFAs
Certainty and Control: Couples can have control over their financial affairs and the distribution of their assets, rather than leaving these decisions to the courts.
Protect Assets: Protects the assets you bring into the relationship and can safeguard inherited or gifted assets.
Financial Clarity: Provides clarity and certainty, which can reduce conflict if the relationship ends.
Save on Time and Costs: Potentially avoids the lengthy and costly court processes involved with the division of property after a breakup.
Considerations and Potential Downsides of a BFA
Comprehensive Disclosure: Both parties must fully disclose their financial circumstances. Failure to do so could result in the agreement being set aside.
Future Changes: BFAs cannot predict future changes in circumstances (e.g., children, significant changes in finances), which may make the agreement inappropriate down the line and subject to challenge.
Emotional Strain: Discussing and creating a BFA can cause tension and may be seen as undermining the trust in the relationship.
Setting Aside a BFA – A court can set aside a BFA under circumstances including:
Fraud or failure to disclose significant assets.
If the agreement is deemed to be unconscionable.
Changes in circumstances that make it impractical for the agreement to be carried out.
A material change in circumstances relating to the care of children that wasn’t foreseen when the agreement was made.
Conclusion
BFAs are powerful tools under the Family Law Act that allow couples to take control of their financial affairs. However, due to the complex nature and the strict legal requirements, it is crucial to seek comprehensive legal advice when drafting such an agreement. Ensuring that a BFA is properly set up is essential for it to be effective and enforceable, providing peace of mind and financial security for both parties involved.
For individuals considering a BFA, it’s advisable to consult with legal experts who specialize in family law to navigate the complexities and ensure that the agreement is fair, compliant, and suitable for both parties’ future needs.
Contact Cogent Legal if you have a question about Asset Division or Binding Financial Agreements.