hat is a Binding Financial Agreement?
A Binding Financial Agreement (BFA) consists of a number of agreements which may be entered into between de facto, soon to be married or already married couples, either before, during or after their relationship. It can be entered into by couples of same sexes as well as of opposite sex. A BFA states how your assets and other financial resources and liabilities will be divided in the event that the relationship breaks down. By making a BFA, the parties lose the right to approach a Family Court to decide the division of property after their separation.
What are the types of Binding Financial Agreement?
Binding Financial Agreement includes the following types of Agreements:
- Pre-nuptial Agreement
- Post-nuptial Agreement
- Cohabitation Agreement
- Separation Agreement
- Divorce Agreement
Who can enter into a Binding Financial Agreement?
Anyone can lawfully enter into a BFA, whether they are (i) heterosexual or same sex couple, (ii) cohabiting or intending to cohabit; (iii) Married or intending to marry, (iv) Separated and (v) Divorced. Both parties must ordinarily be a resident of Australia. Note that a person who has already entered into a BFA with one person cannot sign another BFA with a different person.
What types of issues can be included in a Binding Financial Agreement?
The following are some issues which can be included in a BFA:
- How salary/wages or income will be divided
- What happens with the property and assets you already own
- What happens with the debts you already have
- What happens to the liabilities you jointly or individually incur in the future
- Who owns money in joint bank accounts
- Whether any spousal maintenance is payable after breakdown of the relationship
- A list of assets, liabilities and financial resources each party has at the beginning of the relationship
Can a Binding Financial Agreement be set aside?
If you decide that you no longer wish to follow the terms of the BFA, you can:
- Reach an alternate agreement with your partner
- Make an application to the Court to set aside the BFA
In the case where an application is made to the Court to set aside the BFA, the Court will want to know the following:
- If the terms of the BFA completely represented the intention of both the parties when the financial arrangements were made
- If the BFA is comprehensive and can be read to include everything that both parties have agreed to
- Whether there are other factors the Court should look into such as other understandings between you and your partner
When will the Court set aside the Binding Financial Agreement?
The Court can declare a BFA to be invalid if it is satisfied that:
- There has been a material change in circumstances
- The Agreement was signed by one party under force or it was obtained in a fraudulent manner
- The BFA disregards the interest of the creditors or intends to defraud them
- One superannuation interest cannot be divided
- The BFA is void, voidable or unenforceable
Anyone can lawfully enter into a BFA, whether they are heterosexual or same sex couple, cohabiting or intending to cohabit; married or intending to marry, separated or divorced.
What are the advantages of a Binding Financial Agreement?
There are many advantages of entering into a BFA, some of which are as follows:
- You can make your own rules about the financial circumstances of your relationship;
- A BFA can be used to secure assets such as initial contributions at the beginning of the relationship, future inheritances etc.
- It ensures a fair distribution of assets in the event that the relationship ends
- Having a BFA is a cost-effective solution to avoiding further legal expenses when negotiating settlement and dividing assets
- A BFA can be used as an Estate Planning tool to ensure property passes as intended
- A BFA can provide tax relief for separated couples (subject to certain exceptions)
What are the disadvantages of a Binding Financial Agreement?
There are certain disadvantages of a BFA, some of which are as follows:
- There is no review or scrutiny process by any regulatory body involved in the making of a BFA
- There can be no third party in a BFA
- In the case where possible contingencies are not considered whilst preparing the BFA, it may be unfair to one party
- The process of engaging two separate lawyers and obtaining independent legal advice can be an added expense
- The law surrounding a BFA is quite complicated and hence there is uncertainty about how the Court will interpret the BFA if one party wanted to set it aside
A Binding Financial Agreement ensures that there is an equitable division of assets and that neither party is disadvantaged in the event of the breakdown of their relationship. It is a cost effective method of asset distribution, avoiding the high legal fees required to negotiate settlement and division of assets after the relationship has ended.