A Binding Financial Agreement (BFA) is a private agreement that allows married couples and de facto couples to decide how certain property and financial issues will be dealt with.
Depending on when and why the agreement is made, you may hear similar arrangements described as prenuptial agreements or pre-nups, post-nuptial agreements, cohabitation agreements or settlement agreements. Under Australian family law, however, the relevant legal framework is generally that applying to financial agreements.
These agreements can be entered into before, during or after a marriage or de facto relationship. They can provide greater certainty about issues such as property division, assets, liabilities and, in appropriate circumstances, spousal maintenance if a relationship ends.
However, simply writing down an agreement and signing it does not automatically give it the legal effect the parties expect. There are specific requirements under the Family Law Act 1975, including requirements concerning independent legal advice, and a Court can set an agreement aside in certain circumstances.
Here are six important things to understand before entering into a BFA.
Key Takeaways
- A BFA allows couples to make private arrangements about certain property and financial matters.
- Financial agreements can be made before, during or after a marriage or de facto relationship.
- Each party must receive their own independent legal advice before entering into the agreement.
- A BFA can deal with property, assets, liabilities, financial resources and, in some circumstances, spousal or de facto maintenance.
- After separation, a BFA is not the only option. A property settlement may also be formalised through consent orders.
- A properly prepared agreement can provide greater financial certainty, but it may be set aside by a Court in certain circumstances.
If you are considering entering into a financial agreement, our experienced family lawyers can explain how the agreement may affect your circumstances and the steps required to put one in place.
1. What is a Binding Financial Agreement?
A Binding Financial Agreement is a contract between parties to a marriage or de facto relationship dealing with specified financial matters.
It can set out what is to happen to some or all of the parties’ property and financial resources if the relationship breaks down. Depending on the circumstances, it may also address matters such as spousal maintenance.
One of the important features of a BFA is that, if it is legally binding and covers a particular financial issue, the parties may not need the Court to determine that issue through the ordinary property settlement process.
This allows couples to make decisions about certain financial arrangements themselves rather than leaving all of those decisions until after separation.
A financial agreement is not necessarily an indication that a couple expects their relationship to fail. For some people, it is simply a way of establishing greater certainty around existing assets, businesses, family wealth or inheritances and their potential treatment in a family law property settlement.
2. When can parties enter into a BFA?
A BFA is not limited to couples who are about to get married.
Depending on the relationship and circumstances, an agreement may be entered into:
- before a marriage;
- during a marriage;
- after a marriage has ended;
- before entering into a de facto relationship;
- during a de facto relationship; or
- after a de facto relationship has ended.
An agreement made before marriage is commonly referred to as a prenuptial agreement or pre-nup. Agreements made during marriage are sometimes described as post-nuptial agreements.
Cohabitation agreements is another term sometimes used when couples want to establish financial arrangements while living together, although the legal requirements applying to a BFA under Australian family law remain important.
Following separation, parties may also use a financial agreement to formalise agreed arrangements about property and other financial issues without asking the Court to decide how their assets should be divided. There are also a number of broader legal and practical matters to consider when separating from a partner.
3. How does a Binding Financial Agreement work?
A BFA allows the parties to agree on how specified financial matters will be dealt with.
For example, a couple entering into an agreement before or during their relationship might decide what will happen to particular assets if they later separate. This could include a home owned before the relationship, investment properties, business interests, family assets or expected inheritances.
A couple who has already separated may instead use an agreement to document how particular assets and liabilities are to be divided between them.
The terms should reflect the actual circumstances of the parties. There is no single template or standard agreement that will be appropriate for every couple.
For the agreement to provide the protection the parties expect, it needs to be carefully prepared and the legal requirements applying to financial agreements must be followed.
Why financial disclosure matters
Financial disclosure is an important part of preparing an agreement. Each party should provide appropriate information about their relevant financial circumstances so that the proposed terms can be properly considered.
This may include:
- property and other assets;
- mortgages, loans and other liabilities;
- business interests;
- companies and trusts;
- investments;
- superannuation;
- income;
- financial resources; and
- significant inheritances or gifts.
Material non-disclosure can create serious problems and, depending on the circumstances, may contribute to a Court setting the agreement aside.
4. How binding is a BFA?
The word “binding” can create the impression that an agreement can never be challenged. That is not the case.
For a BFA to be legally binding, it must satisfy requirements under the Family Law Act 1975. Among other requirements, the agreement must be signed and each party must receive their own legal advice from an Australian legal practitioner before entering into it.
The advice must address the effect of the agreement on that person’s rights and the advantages and disadvantages of entering into the agreement. The required statements confirming that advice has been provided must also be given.
One lawyer cannot simply advise both parties. Each person needs independent representation because the agreement can significantly affect their financial and property rights. While friends and family may be an important source of support, relying on informal family law advice can sometimes become costly when important legal or financial decisions are involved.
Can a Binding Financial Agreement be overturned?
Yes. The Federal Circuit and Family Court of Australia can set aside a financial agreement in certain circumstances.
These can include problems involving fraud or material non-disclosure and other circumstances recognised under the Family Law Act. Issues surrounding how an agreement was negotiated or entered into may also become relevant if its validity is later challenged.
This is why a document being labelled a “Binding Financial Agreement” does not, by itself, guarantee that it will withstand a future challenge.
5. What can a BFA cover?
The agreement can be tailored to the circumstances of the couple and does not necessarily need to deal with every aspect of their finances.
Depending on the circumstances, it may address:
- how property will be retained, transferred or divided;
- assets owned by either party before the relationship;
- property acquired during the relationship;
- financial resources and investments;
- superannuation interests;
- debts and other liabilities;
- business interests, companies or family businesses;
- family farms or assets intended to remain within a family;
- inheritances or significant gifts;
- financial contributions made by either party;
- property settlement arrangements following separation; and
- spousal maintenance or de facto maintenance, where appropriate.
For example, someone entering a relationship with an established business or substantial property may want particular assets dealt with separately. In another situation, both parties may simply want greater certainty about how jointly accumulated property would be divided if they separate.
The appropriate terms depend on the couple’s circumstances rather than a standard or one-size-fits-all document.
6. Why does each party need their own lawyer?
Receiving independent legal advice is one of the most important requirements associated with a BFA.
Each person must receive advice from their own Australian legal practitioner before entering into the agreement. The same lawyer cannot simply advise both parties about whether the proposed arrangement is appropriate for them.
Before advising you, a family lawyer will generally need to understand your personal and financial circumstances. Relevant information may include:
- the length and nature of the relationship;
- whether there are children;
- your current assets and liabilities;
- property owned jointly or separately;
- superannuation;
- business, company or trust interests;
- income and future earning capacity;
- inheritances or significant gifts;
- financial and non-financial contributions made during the relationship; and
- what the proposed agreement requires each party to receive, retain or give up.
Your lawyer can then explain how the proposed agreement affects your legal rights and the advantages and disadvantages of entering into it.
Binding Financial Agreements, property settlements and consent orders
A BFA is one way of formalising financial arrangements between a couple, but it is not the only option.
After separation, parties who agree about dividing their property may also be able to formalise a property settlement through consent orders. It is also important to understand the difference between divorce and a property settlement, as they are separate legal processes.
Consent orders are proposed orders that both parties ask the Federal Circuit and Family Court of Australia to approve. Once the Court makes the orders, they become legally binding court orders.
A financial agreement works differently. Rather than asking the Court to make orders about the proposed property division, it is a private agreement between the parties made under the relevant family law legislation.
Both approaches can therefore provide a legally recognised way of dealing with financial issues, but the legal processes are different.
Which option is more appropriate will depend on factors such as:
- whether the couple is still together or has already separated;
- the property and financial resources involved;
- the complexity of the proposed arrangements;
- whether maintenance needs to be addressed;
- the terms agreed between the parties; and
- their broader personal and financial circumstances.
If you are dealing with separation, a family lawyer can explain whether a financial agreement, consent orders or another approach to property settlement may be more suitable.
What are the benefits of having a BFA?
One of the main reasons couples consider a BFA is the greater degree of financial certainty it can provide.
Couples can agree on financial arrangements while they are able to discuss them clearly rather than waiting until a relationship has broken down and property issues may have become more contentious.
Depending on the circumstances, an agreement may help to:
- protect assets accumulated before a relationship;
- provide greater certainty about future property division;
- protect a business, farm or other family asset;
- address expected inheritances or family wealth;
- provide clarity for children from previous relationships;
- reduce the scope for financial disputes following separation; and
- reduce some of the time, stress and expense associated with resolving financial matters later.
However, a BFA is not automatically appropriate for every couple. Its value will depend on what you own, your financial circumstances, the terms being proposed and what you want the agreement to achieve. It is also worth being aware of the common myths surrounding family law property settlements when considering your options.
Is a Binding Financial Agreement right for you?
There is no single answer that applies to every married or de facto couple.
For some people, a financial agreement provides valuable certainty and helps protect significant assets or clarify how future property issues will be handled. For others, another legal process may be more appropriate.
The key is understanding what the agreement will actually achieve, what rights it affects and whether the proposed terms suit your circumstances before you sign anything.
Speak with a family lawyer about a Binding Financial Agreement
Whether you are planning a marriage or de facto relationship, already in a relationship, or dealing with financial matters following separation, putting appropriate arrangements in place can provide greater clarity about your financial position.
Because the legal requirements are strict and every family’s circumstances are different, it is important to obtain advice before entering into an agreement.
The family law team at Hede, Byrne & Hall can advise you about BFAs, property settlements, consent orders and other family law financial matters.
Contact us to discuss your circumstances or call your nearest office:
Frequently Asked Questions
Can you do a Binding Financial Agreement without a lawyer?
Not if you want to enter into a BFA that satisfies the relevant requirements of the Family Law Act 1975. Each party must receive independent legal advice from an Australian legal practitioner before entering into the agreement.
This means the parties need separate legal advisers rather than relying on one lawyer to advise both of them.
Can I write my own Binding Financial Agreement?
You may be able to write down proposed terms or reach an initial agreement with your partner, but simply preparing and signing your own document does not make it a legally binding BFA.
Financial agreements are technically complex and both parties must receive the required independent advice. Problems with drafting, disclosure or the legal process followed when the document is signed may also create difficulties later.
If you already have proposed terms or a draft agreement, a family lawyer can advise you about the steps that need to be completed before anything is signed.
How much does a Binding Financial Agreement cost in Australia?
There is no standard cost for preparing a BFA in Australia.
Legal fees will depend on factors such as:
- the complexity of the proposed agreement;
- the number and value of the assets involved;
- whether businesses, companies or trusts are involved;
- the amount of negotiation required;
- whether significant changes to the proposed terms are necessary; and
- the complexity of each party’s financial circumstances.
Because both parties require separate legal advice, each person will generally have their own legal costs. A lawyer can provide more specific information about likely fees after understanding your circumstances and the type of agreement required.
Is a Binding Financial Agreement worth it?
For some couples, a BFA can be very useful. This may particularly be the case where one or both parties have substantial existing assets, a business, a family farm, expected inheritances, children from previous relationships or simply want greater certainty about their financial arrangements.
Whether it is worthwhile depends on the value and complexity of the assets involved, what the parties want to protect, the proposed terms and the potential financial issues that could arise if the relationship later ends.
A family lawyer can help you assess whether entering into an agreement makes sense for your particular circumstances rather than assuming that every couple needs one.
What is the difference between a BFA and consent orders?
Both can be used to formalise agreed financial arrangements, but they operate differently.
Consent orders are agreed terms that the parties ask the Court to approve. If approved, they become legally binding court orders.
A Binding Financial Agreement is a private agreement entered into under family law legislation and does not need to be approved by the Court when it is made. However, each party must receive the required independent legal advice.
Following separation, the most appropriate option will depend on the circumstances, so it is worth obtaining advice about both approaches before deciding how to formalise a property settlement.
