If you are in a de facto relationship or entering into marriage, it is important to consider your financial arrangements in the event of a relationship breakdown. Often, parties bring different financial positions into a relationship, and protecting existing assets is a prudent step. One way to achieve this is by entering into a Binding Financial Agreement (BFA) — commonly known in the United States as a prenuptial agreement.
A BFA is a legally binding contract in which the parties agree on how their property and any spousal maintenance will be dealt with if the relationship ends. In Australia, BFAs can be executed before, during, or after a marriage or de facto relationship, allowing parties to formalise property division arrangements at any stage.
Formal Requirements
To be valid and enforceable, a BFA must meet strict legal requirements:
- It must be in writing and signed by both parties;
- Each party must receive independent legal advice before signing;
- A certificate from each party’s lawyer confirming that advice was provided must be included;
- It must be entered into freely, without fraud, duress, or undue influence;
- The parties must provide full and frank financial disclosure.
Advantages of a Binding Financial Agreement
A properly drafted and enforceable BFA offers several benefits:
- Certainty – It removes ambiguity about how property will be divided in the event of separation.
- Asset Protection – It safeguards assets acquired before the relationship or received by way of inheritance or gift.
- Efficient Resolution – It provides a clear plan for dealing with joint property.
- Avoiding Litigation – It can prevent costly and lengthy court proceedings.
- Confidentiality – Unlike court cases, BFAs remain private and confidential.
Disadvantages and Limitations
However, there are some risks and limitations to be aware of:
- A court may set aside the agreement if there was non-disclosure, coercion, or if the agreement is deemed unjust.
- The terms may be less favourable than what a party could receive under the Family Law Act 1975.
- The agreement can only be varied or terminated by mutual consent and with fresh legal advice.
- BFAs cannot address parenting arrangements or child support.
- They do not prevent future spousal maintenance claims unless this is expressly dealt with.
- They may not account for significant future changes, such as alterations in earning capacity or financial needs.
While a Binding Financial Agreement can provide clarity and security, it must be carefully drafted to ensure it complies with current legal requirements and remains enforceable. It is important to understand that BFAs cannot account for every life change or future legal development.
If you are considering a BFA or would like tailored advice regarding the division of assets, our experienced team is here to help. Please do not hesitate to contact our office to arrange a consultation.
