Binding Financial Agreements – what am I actually signing?

Binding Financial Agreements – what am I actually signing? Photo by Kelly Sikkema on Unsplash

Binding Financial Agreements (“BFA”) are often colloquially referred to as a ‘pre-nup’ or ‘pre-nuptial agreement’. Simply put, a BFA enables married or de facto couples to enter into a legally binding contract that clearly sets out how their financial affairs will be dealt with, in the event that their relationship breaks down. Without a BFA, separating parties would resolve the distribution of their assets under the Family Law Act 1975 (“the Act”).

However, a BFA can remove the parties’ rights and responsibilities under the Act with respect to property settlements.

A Binding Financial Agreement can be executed either before the relationship, during the relationship or after separation.

Parties can clearly define how all assets (including jointly owned assets) will be divided.

This all sounds great but what am I actually signing?

Binding Financial Agreements are private agreements that specifically deal with the following:

  1. putting an end to your rights and responsibilities under the Act with regards to a property
  2. specifically identifying particular assets and liabilities that each party will retain following
  3. how joint assets will be divided following separation; and
  4. whether spousal maintenance will be payable following separation.

Given the significant implications of a BFA, both parties must obtain independent legal advice before anything can be signed. The lawyers for each party will sign the BFA to acknowledge that each party has received legal advice.

What happens once the Binding Financial Agreement is signed?

Once the Binding Financial Agreement has been signed, it is final and binding.

The BFA cannot be varied unless both parties agree in writing.

The terms of the BFA will only come into effect upon parties separating.

It should be noted that the Family Court does have the ability to set aside a BFA if:

  1. the Court thinks that enforcing the BFA would cause hardship to the party looking after a
    child or children, or to the child or children themselves;
  2. there was a failure to disclose relevant matters during the making of the BFA;
  3. the BFA was made in order to defeat the interests of other parties including creditors;
  4. the Court finds there was unconscionable conduct in the making of the BFA;
  5. a party is unable to support themselves at the time the BFA comes into effect, and the Court chooses to set aside the exclusions or limits on maintenance; or
  6. there has been a significant change in circumstances since the BFA was made, and to enforce the BFA would bring hardship on one party (i.e. the birth of another child).

Given that there is an opportunity for the BFA to be set aside, it is imperative that parties consistently review their BFA to ensure that it evolves with the relationship.

Advantages and disadvantages of Binding Financial Agreements

The advantages to executing Binding Financial Agreements include:

  1. any significant family assets owned prior to the relationship will remain protected, including family businesses, farms and other large income-producing assets;
  2. parties will avoid the ongoing emotional stress of protracted legal proceedings;
  3. parties are provided with a high level of certainty regarding the future of their assets;
  4. the costs of the BFA are minimal compared to incurring court costs;
  5. the BFA is private, whereas court proceedings are on the public record; and
  6. the BFA cannot be set aside by the Court if one party deems it unfair.

While these advantages are clear, the following disadvantages should be noted and considered:

  1. the making of the BFA may foster distrust between parties;
  2. in a context where one party is a low or non-wage-earning spouse, they may end up being severely disadvantaged by the BFA;
  3. there is no way of knowing if legislation will change in the future that may adversely affect the binding nature of the BFA.

The details of a BFA are incredibly complex and must be prepared to cover various situations and scenarios.

Simply downloading a proforma from the internet and imputing your details will not be worth the paper that it is printed on. As such, it is important that the BFA is prepared by a qualified and experienced family lawyer.

It is up to each party to individually consider whether they should enter into the BFA and to talk it over before making arrangements for the BFA to be prepared.

To just draw one up and expect the other party to sign on the dotted line without any discussion is likely to make them feel betrayed and generate distrust – and that is not a good start for any relationship. The execution of a BFA should be collaborative, not combative.

Like with all legally binding documents – DO NOT sign anything without first obtaining independent legal advice.

For more information on BFA, please refer to our pages about prenuptual agreements.