The average Australian marriage lasts 12 years, with one in three ending in divorce. Under the Family Law Act 1975 (Cth), a Binding Financial Agreement (BFA), otherwise known as a prenuptial agreement, sets out how a couple’s assets are to be divided upon marital or de facto separation.
This legally binding and enforceable document can be an efficient and affordable way to safeguard your assets in the event of a relationship breakdown. However, it also comes with some important considerations to factor in before you sign.
Below, we explain Binding Financial Agreement advantages and disadvantages so that you can make an informed decision before getting married or becoming a de facto couple. Read on to discover the pros and cons of this legal arrangement and whether it is the right way forward for your relationship.
Advantages of a Binding Financial Agreement
Can be made at any stage
The first advantage of a Binding Financial Agreement is that it can be entered into at any point in your relationship. It is never too late. You can choose to create this contract before, during or even after your marriage or de facto relationship has come to an end.
Asset protection
The peace of mind that comes from knowing your assets are safe and secure should the relationship end is a key benefit of this arrangement.
You may own valuable assets or have financial interests that you’d like to safeguard in event of separation or divorce. A Binding Financial Agreement can help you decide how to acquire, manage and sell shared assets after you call it quits on your time together.
It provides the flexibility to identify and protect the assets that matter most to you, and can be tailored to ensure that your children inherit them.
Moreover, it brings clarity and confidentiality to the division of any inherited property. For couples who prefer to keep their financial matters private, a binding financial agreement provides a legal avenue to maintain this confidentiality.
Greater control
Lots of couples decide to enter into a Binding Financial Agreement to maintain control over how their assets will be split if they separate or divorce. This way, you can establish your own guidelines, instead of relying on the rulings of a Family Court.
A clear and fair division of assets
Many couples believe they can peacefully divide shared assets if their relationship dissolves. The reality is often different, with heightened emotions making it difficult for former partners to negotiate justly and logically.
Therefore, it’s wise to address these issues while still in a loving relationship. At this harmonious time, both parties will be more inclined to act in the other’s best interests – a positive mindset that usually facilitates a fair and transparent arrangement.
As this precise agreement details the intended allocation of assets should the relationship end, both partners can be fully aware of what to expect on a financial front if they part ways.
Cost-effective property settlements
A Binding Financial Agreement typically results in more cost-effective expensive property settlements, as it helps to sidestep the need for extensive and expensive legal proceedings in the Family Court.
If the dispute escalates to a court trial, the financial toll could soar to tens or even hundreds of thousands of dollars. It all depends on the willingness of each party to reach a compromise.
No drawn-out court proceedings
Binding Financial Agreements offer unrivalled efficiency when it comes to dividing property and assets after separation or divorce. Typically, this agreement can be finalised within one to two months, assuming both parties agree on its terms (though this timeline can vary based on the complexity of your financial situation).
In the absence of this type of agreement, reaching a resolution through the Family Court can take years – not to mention the significant financial and emotional burdens of legal proceedings. Plus, this duration can be further prolonged if there is a court battle between former partners who cannot find common ground.
Potential tax benefits
In Australia, a Binding Financial Agreement can offer similar tax advantages to those provided by Family Court orders. For example, stamp duty concessions and Capital Gains Tax rollover, which would be payable in scenarios where a property settlement requires Court Orders.
However, it’s important to understand that these tax incentives do not apply when assets are divided through a private or informal arrangement.
Disadvantages of a Binding Financial Agreement
Risk of conflict
One potential drawback of a prenuptial agreement is that simply bringing up the topic can put significant stress on a relationship, even before the marriage starts. After all, conversations about money and assets can be difficult, even for couples in a healthy and happy relationship.
The suggestion of such a contract might be perceived as a sign of mistrust, rather than a precautionary step. As a result, even if you have good intentions, proposing this arrangement can lead to feelings of suspicion and uncertainty, especially if the other partner does not share the same perspective.
So, before breaching the idea of a Binding Financial Agreement with your partner, consider the sentiments involved and potential solutions for arguments or tensions that might arise.
Cannot account for every outcome or asset
From relationships to finances, life is full of unforeseen ups and downs. As a Binding Financial Agreement is generally entered into before commencing a marriage or de facto relationship, it’s tough to factor in every eventuality that might occur in the future.
Additionally, this legal contract only considers assets that are held when it is being created, and therefore won’t factor in each partner’s financial circumstances at the time of separation.
So, do I need a Binding Financial Agreement?
When it comes to Binding Financial Agreement advantages and disadvantages, the pros tend to outweigh the cons. This enforceable contract provides a degree of certainty and control over your finances should the unexpected occur.
Plus, reaching an agreement while you are still on loving terms helps to prevent lengthy and costly Court proceedings if you separate (without a Binding Financial Agreement in place, you may have to enter a Property Settlement or apply for Consent Orders).
Ultimately, you can enjoy peace of mind knowing that any assets you own before or after the relationship is shielded from any legal action. That said, it all depends on your distinct situation.
You may want to consider a Binding Financial Agreement if you:
- Are wealthier than your partner at the beginning of your relationship;
- Expect to be entitled to an inheritance or sizeable gift down the line;
- Own a family business or have an investment that should be protected;
- Want to finalise property division terms from the outset to prevent costly Court proceedings; or
- Have dependents with financial needs that must be met in the future.
Find out more with our guide to Binding Financial Agreements.
Get independent legal advice with your Binding Financial Agreement
Equipped with a deeper understanding of Binding Financial Agreement advantages and disadvantages, you are now in a better position to decide whether it is a suitable arrangement for your relationship.
If you choose to go ahead with this proactive agreement, it is imperative to seek professional legal support on your rights and responsibilities before signing. This complex contract can safeguard your assets with fair and enforceable terms – but only if it accounts for your unique circumstances and meets legislative requirements.
At Affinitas Legal, we are here to help you prepare a personalised and valid Binding Financial Agreement in WA. Our trusted family lawyers will guide you through every step to ensure your best interests are protected, whatever the future brings. Please get in touch with our team today for tailored support.
