Ready to get married or move in with your long-term partner? When relationships get serious, it’s important to take measures that will protect your hard-earned savings and future assets should you ever decide to part ways. But what is a Binding Financial Agreement exactly?
A Binding Financial Agreement is a legal document that outlines how spouses or de facto partners will distribute their assets in the case of a relationship breakdown. This enforceable document can be an efficient and cost-effective way to protect your assets into the future, ultimately saving you both time and money.
Below, we explain the inclusions, benefits and considerations to take into account if you are planning to enter into a Binding Financial Agreement. Read on to learn how this legal document could help you avoid the risk of stressful, lengthy and expensive Court proceedings after separation.
What is a Binding Financial Agreement?
A Binding Financial Agreement (BFA) is a legally enforceable contract that details how a couple’s assets will be divided in the event of marital or de facto relationship breakdown.
Other names for this type of financial agreement include:
- Pre-nuptial agreement or ‘prenup’;
- Cohabitation agreement; and
- Post-nuptial agreement.
A Financial Agreement may address all aspects of the parties’ financial relationship or only deal with certain matters, such as spousal maintenance.
It also overrides the Court’s authority over financial disputes between the parties, whether overall or for particular issues. Essentially, when correctly drafted and executed, this Financial Agreement can help to avoid Court proceedings.
When can you enter into this agreement?
You can enter into a Binding Financial Agreement before, during or after a marriage or de facto relationship.
You can find the legislation regarding this contract at each stage of a relationship below:
- Before marriage: Section 90B
- During marriage: Section 90C
- After divorce: Section 90D
- Before a de facto relationship: Section 90UB
- During a de facto relationship: Section 90UC
- After a de facto separation: Section 90UD
While a BFA can be entered into before, during or after an eligible relationship, it is usually put in place before getting married or living together.
Importantly, both parties are legally required to obtain independent legal advice before entering into this financial agreement.
The potential benefits of a Binding Financial Agreement
There are plenty of reasons why past and present couples all over Australia choose to enter into a Binding Financial Agreement.
Here are the core advantages of this proactive contract:
- Asset protection: They secure your assets and financial interests, enabling you to manage and distribute shared assets with clarity and privacy should the relationship end.
- More control: By determining your own terms for asset division, you sidestep the uncertainty and potential conflict of court decisions.
- Clear asset division: Tackling asset division during a positive phase of the relationship encourages fair and transparent agreements, with all parties clear on the financial implications should they part ways.
- Flexible setup: These agreements can be set up at any point—before, during, or after a relationship, offering flexibility no matter what stage your relationship is at.
- Cost-effective approach: These agreements often avert costly legal battles, thereby reducing the financial strain of property settlements.
- Efficient process: The process is typically quicker, usually taking one to two months to complete, compared to potentially lengthy court cases that could go on for years.
- Tax benefits: In Australia, these agreements can provide tax benefits similar to those offered by Family Court orders, including stamp duty concessions and Capital Gains Tax rollover.
Overall, this financial arrangement can give couples the certainty and control required to separate or divorce amicably without costly, stressful and drawn-out Court proceedings.
However, it’s not always the best way forward. Keep reading to discover whether you and your current or former partner should consider this contract.
Learn more about the advantages and disadvantages of a Binding Financial Agreement.
Do I need a Binding Financial Agreement?
A Binding Financial Agreement offers an element of certainty and control over future financial arrangements. Reaching consensus in advance of relationship breakdown helps to prevent unnecessary arguments and costly Court proceedings, as well as make for an efficient asset distribution process, should you decide to separate.
A Binding Financial Agreement can also provide you with peace of mind knowing that any property you have acquired before or after the de facto relationship or marriage, such as inheritance, is protected.
Given the above advantages, you should consider a Binding Financial Agreement when you:
- Own more assets than your partner at the start of your relationship;
- Are entitled or likely to be entitled to an inheritance or valuable gift in the future;
- Run a family business or have an investment that must be safeguarded;
- Want to agree on property division terms upfront to avoid Court proceedings; or
- Are developing a new relationship or have dependents whose financial needs must be protected.
If your marital or de facto relationship comes to an end and there is no Binding Financial Agreement in place, then you will likely need to enter a Property Settlement or apply for Consent Orders with the Family Court.
What to include in a Binding Financial Agreement
A Binding Financial Agreement should include the following information:
- Details about the financial standing of both parties;
- Details about the relationship, when it began and when you plan to marry;
- Account for significant possible changes in circumstances;
- A list of each party’s assets and liabilities (including values) acquired before, during and after the relationship both together and separately;
- Details on how you wish to manage your assets and liabilities throughout the relationship; and
- A clear asset distribution process in the event of relationship breakdown.
What properties are covered?
A Binding Financial Agreement can encompass all types of property, except for parenting and child support matters. Examples of property that tends to be covered in this agreement include:
- Bank accounts;
- Real estate;
- Vehicle;
- Inheritance;
- Insurance policies;
- Superannuation entitlements; and
- Debts
Are Binding Financial Agreements enforceable?
Yes. When prepared correctly, a Binding Financial Agreement is legally enforceable under Part VIIIA (marriages) or Division 4 of Part VIIIAB (de facto relationships) of the Family Law Act 1975 (Cth).
To be considered valid and enforceable, this document must meet the following requirements:
- The parties are entering a marriage or de facto relationship together, already in a marriage or de facto relationship together, or have separated or divorced from each other;
- The BFA is in writing and both parties have signed it;
- Before signing the Agreement, each party received independent legal advice about its implications and their rights, as well as the benefits and drawbacks of making such an Agreement;
- After signing the Agreement, each party received a signed statement from their lawyer verifying that the above advice was solicited;
- The parties exchanged signed copies of the above statements;
- A separation declaration has been included unless the Agreement was signed after the divorce; and
- The Court has not set aside or terminated the Agreement.
As a Binding Financial Agreement is enforceable, it is important to make sure its terms are up to date. We strongly recommend reviewing this document every two years and after any significant milestone that may affect your financial circumstances, such as the birth of a child or the receipt of inheritance.
Terminating a Binding Financial Agreement
The Family Law Act sets out specific circumstances in which a Court may set aside a Binding Financial Agreement:
- The Agreement has been prepared by fraudulent means, such as failure to disclose all assets;
One or both parties entered the Agreement with the aim of defrauding or defeating a creditor; - The Agreement is not binding due to non-compliance with legislative requirements;
- Subsequent circumstances have rendered the Agreement impossible or impractical;
- A change in circumstances concerning the care, welfare or development of a child of the relationship means that a party to the Agreement will endure hardship if the BFA is not terminated;
- The conduct of one or both parties was unconscionable while making the Agreement;
- At least one superannuation interest in the Agreement is deemed an “unsplittable interest’’; or
- The Agreement covers a superannuation interest with a “payment flag” and it is unlikely that this flag will be terminated by a “flag lifting”.
- To terminate a Binding Financial Agreement, eligible parties may enter into a new Binding Financial Agreement that includes a specific provision stating that the former Agreement has been set aside.
Alternatively, parties can enter into a Termination Agreement based on the Binding Financial Agreement’s non-compliance with the Family Law Act.
For a Termination Agreement to be legally binding, both parties must sign the document after obtaining independent legal advice on its effects and their rights.
What information will a lawyer need from me?
Before advising you and drafting this legal contract on your behalf, a lawyer must have a complete understanding of both parties’ current and future financial standing.
Therefore, you’ll need to share detailed information about the following factors:
- Each party’s current and future earning potential;
- Superannuation entitlements;
- All existing assets, including personal belongings, vehicles and investments;
- The value of all joint and individually-owned assets;
- The market value of any real estate a party plans to own individually;
- Any liabilities, including loans, mortgages and other debts;
- The presence of any other applicable Family Law financial agreements;
- The dates that both the relationship and cohabitation commenced between the parties;
- The ages of any children involved; and
- Previous marriages of either party.
Once we have taken the time to understand your unique circumstances, our lawyers will help you prepare and finalise a financial agreement that protects your best interests in the event of separation or divorce.
Get tailored support with your Binding Financial Agreement
Binding Financial Agreements are complex contracts, demanding strong legal expertise to satisfy all conditions and ensure the terms are enforceable under the Family Law Act.
To protect your best interests, this Binding Financial Agreement must also be tailored to the unique circumstances of your relationship and finances.
That’s why it is so important to seek the support of an experienced legal practitioner who specialises in Family Law if you plan to prepare a Binding Financial Agreement.
At Affinitas Legal in Perth, our dedicated family lawyers are available to assist you with every step of your Binding Financial Agreement in WA. Please get in touch with our team today for personalised support.
