There are many names for Binding Financial Agreements or BFA’s, including;
- Pre-nuptial Agreements (commonly known as pre-nups),
- Post-nuptial Agreements (post-nups);
- Settlement Agreements; and
- Cohabitation Agreements.
All of the above are known by the courts as Binding Financial Agreements. These agreements have created much publicity, including being the focus of many sensational newspaper stories and movie scripts. This article sets out the six key points you need to know about BFA’s, and how they operate in Australia (and not in Hollywood).
When do the parties enter into a BFA?
BFA’s can be entered into:-
- before the commencement of a marriage or de-facto relationship;
- At any point during the marriage or relationship;
to set out how the property of the relationship will be dealt with in the event of a separation.
These agreements are designed to formalise the distribution of the property of the relationship without the need to involve the Court.
How do they work?
A BFA before separation allows a couple to agree in advance on an acceptable division of assets in the event of separation. after a relationship between a couple breaks down, or is no longer workable, can reduce the financial stress of a separation and allow the couple to amicably separate without the need for costly, time-consuming and stressful court action.
Therefore entering into a properly drafted and executed BFA can prevent the Courts from interfering with the agreed property distribution and provide certainty following the breakdown of any relationship.
How binding are they on the Courts?
The short answer is that they are binding, provided they have been set up correctly. To be binding, there are certain requirements that BFA’s need to meet. If these requirements are not met, then the agreement can be void or set aside by a Court. An important feature of BFA’s is that each party must obtain independent legal advice, and the solicitor for each party must sign a certificate confirming that they have advised their respective client about the effect of the Agreement on the party’s rights, and the advantages and disadvantages to that party of entering into the Agreement. Both parties must also provide full and frank disclosure of their relevant financial circumstances at the time that the BFA is made.
What does a BFA usually cover?
A BFA can specify how the parties have agreed to divide the asset pool in the event of a breakdown of the relationship. They may deal with:-
- The way in which the property of parties is to be divided between them;
- The financial support (maintenance) of one party by the other; and
- Any other necessary financial issues.
The following practical issues, which commonly arise, may be dealt with in the BFA:
- Determining what each party to a relationship will receive following the breakdown of the relationship;
- Seeking to protect existing assets or likely inheritances which may arise during the relationship or following separation;
- Providing for the preservation of property to allow children of previous relationships to inherit;
- Preserving family farms or other businesses for future generations;
- Providing more weight to the contribution of a higher income earner; or
- Avoiding disputes about financial matters at the end of a relationship.
The issues dealt with by a BFA will likely depend on whether the BFA is made in contemplation of the breakdown of a relationship (I.e. pre-nuptial agreement) or following the separation of the parties (a separation agreement).
What a lawyer will need to know when advising about BFA’s
When a family lawyer is advising a party about a BFA and before an agreement can be drafted, many factors are taken into account, for example:
- The length of the relationship;
- The number and age of any children;
- The parties’ occupations and future capacity to earn an income;
- Their superannuation entitlements;
- The value of the current assets of the parties including chattels, vehicles, shares, furniture, valuables, whether they are held jointly or solely;
- Details of each party’s liabilities including any loans, mortgages or debts;
- Whether either party has made any significant financial contributions at the commencement of or during the relationship;
- Whether either party has received any inheritances, gifts or other financial contributions from family or others;
- The non-financial contributions of the parties;
- Whether there is any other family law financial agreement which may apply.
What are the benefits?
A correctly executed BFA will provide some degree of certainty to the parties, allowing them to avoid unnecessary arguments if a relationship ends, as they have previously agreed as to how the property will be divided.
Pre-nuptial or post-nuptial BFA’s can also make parties feel secure knowing that the property they have accumulated before the relationship or marriage is safe. By reaching agreement in advance, the issues that occur after the breakdown of a relationship are more likely to be resolved without costly legal expenses or court delays.
There are some risks associated with the preparation of BFA’s, and it is important to get expert advice on the issues before a BFA is entered into.
BFA’s can provide a source of comfort to parties before or after relationship issues arise. When done properly, they not only provide certainty, they can also reduce the stress, costs and time that parties experience with protracted Court proceedings.
If you know someone who may need assistance, we invite them to contact us or call us: