Binding Financial Agreement

By Ryan Witnish

The Family Law Act in Australia allows individuals who are in a marriage or de facto relationship to enter into a financial agreement to determine the division of their assets, liabilities and property, whether entered before, during or after their marriage or de facto relationship. 

Why should I enter into a Binding Financial Agreement?

Lack of transparency in financial dealings are one of the major causes of the breakdown of relationships. Entering a Binding Financial Agreement (BFA) can be beneficial to a relationship as it provides certainty and clarity with regard to a parties financial circumstances which can be a difficult topic for couples to discuss at the best of times but far more treacherous in times of conflict.

While some may argue that entering into a financial agreement is unromantic and divisive, there is nothing as unromantic as a bitterly contested property settlement at the back-end of a relationship where the costs for each party can be between $50,000 to $150,000 in addition to the stress and uncertainty associated with unresolved proceedings or litigation.

You may benefit from a Binding Financial Agreement if:

• You have commenced a new relationship and have children who need to be protected financially;
• Accumulated significant wealth prior to the relationship and consequently want to protect that wealth;
• From a wealthy family and want to protect your inheritance or any potential gifts or contributions you may receive from you family during a relationship;
• Part of a family business (including a farm) and do not want a future separation to interfere with the operations of that business;
• Want certainty in relation to the distribution of assets upon separation and want to reduce the risk and emotional and financial cost associated with litigation.
• You anticipate an inheritance or large gift from a third party and wantsto quarantine that inheritance and/or gift via entering a BFA.

What makes a Financial Agreement ‘BINDING”

There are a number of characteristics that every BFA must include in order to be legally binding:

1. The names of all the parties involved in the agreement;
2. The relevant section of the Family Law Act that the BFA pertains;
3. A statement that each party has received legal advice before signing the agreement
4. Full disclosure of each party’s financial circumstances, including income, assets and debts.
5. The terms of how the property and finances will be divided between the parties.
6. The signatures of all the parties involved in the agreement.

Can a binding financial agreement be challenged?

A BFA can be challenged in Australia on the following grounds:

• Fraud.
• If entered to defraud creditors.
• Circumstances make the Agreement impracticable.
• Material change in circumstances since the Agreement was made and it would cause hardship to a child or a person caring for a child if the terms of the BFA were adhered.
• Unconscionable conduct.

However, if properly prepared, BFA’ are enforceable in Australia. Consequently, it is essential for anyone contemplating entering into a BFA to obtain legal advice from an experienced family lawyer. Strict legal requirements need to be followed for a BFA to be binding. The lawyers engaged should have experience drafting agreements of this kind and knowledge of the court’s approach to financial agreements.
  
This is particularly true where a BFA determines your entitlements:

• at a time unknown (if at all) in the future;
• where the asset pool at the time in the future is unknown;
• where the value of assets at a time in the future is unknown;
• where your rights before the court at that time in the future are also unknown;
• where monetary and non-monetary contributions at that future time are unknown;  and
• where your respective financial circumstances (including your earning capacity and health) at that future time are unknown.

How much does it cost

If a party wishes to enter into a BFA, they should with the expertise of an experienced family lawyer. Generally, an uncomplicated BFA should cost each party $2,500 to $5,000 plus GST.  As referred to above, each party will need to be separately represented.  

If there are complexities (e.g. companies or trusts are involved or you or your partner are offshore, have property situated offshore and you plan to live and work either in or out of Australia) then you should expect to pay at least $5,000 to $10,000 plus GST.  

While these costs may seem high, we warn anyone interested in entering into a BFA not to cut corners.  If the agreement does not comply with the strict requirements of the Family Law Act, or sufficient attention has not been given to the content of your agreement and how you intend to divide your property in such a way as to limit the potential challenges available to set aside your agreement, then your BFA may not be worth the paper it is written on.