Binding Financial Agreements
Binding Financial Agreements (BFAs) are contracts that set out the agreement reached about how your property and financial resources are to be distributed upon separation. BFAs can occur at any point before, during or after a marriage or defacto relationship has ended. BFAs can cover all of the property of the parties, or may deal with selected assets only. That is, the agreement can specify what happens to all assets (assets owned prior to marriage and assets acquired during the marriage) in the event that separation occurs or the agreement might only specify what happens to one item or a particular class of assets (e.g. an inheritance). BFAs can cover any type of asset, contingency or consequence you can imagine. They can detail maintenance, separation of assets (whether acquired before or during the marriage), how the children (if any) are to be cared for. As such, they are perfect for protecting any asset that has sentimental value for you, whether or not it is also financially valuable.
A party may elect to enter into a BFA in preference to Consent Orders (which need to be lodged with the Court for approval) where their financial circumstances are complex, involving complicated company structures and taxation matters and to avoid the delay that may occur in obtaining orders in the Court.
BFAs remove some of the uncertainty that is inherent in the divorce process. Without a financial agreement, if you do end up in court, the decision will be based on what the judge deems to be proper, just and equitable in the circumstances, not how you decide. The consequences of this process are unknown until a decision is made, and even then it may be appealed, leading to a drawn out process. On the other hand, a BFA provides certainty in advance. Divorces and separations are painful enough already. Emotions are typically high. Adding uncertainty and legal battles to the mix does not suggest a good outcome for either person. A financial agreement can resolve many of these problems.
There are particular requirements which must be contained within BFAs for them to be legally recognised. If the agreement complies with the legislative requirements, the parties are then prevented from going to court for orders relating to the property covered in the BFA. BFAs need to satisfy the formal requirements specified in section 90G of the Family Law Act 1975 to achieve this status:
- The agreement must be written. An oral agreement won’t suffice. This is because they are quite complex documents, and specificity is vital.
- Both parties must receive independent legal advice from a legal practitioner. This advice must tell each of you what the agreement means for you, in terms of your rights, and the advantages and disadvantages of the agreement. It is encouraged that you get this advice in writing.
- The agreement must contain a clause stating you have each obtained such advice.
- A signed certificate from the legal practitioner attesting to this advice must be attached to the agreement.
- Each party must sign the agreement.
- Finally, each party must have either a copy or the original of the financial agreement.
These steps essentially prevent either party from saying they were not aware of the consequences of the agreement when they entered into it.
You need to obtain legal advice if you are considering this type of agreement. If a BFA complies with the requirements set out in the Family Law Act it will be binding on and enforceable against the parties. Applying to the Family Court over assets or dealings that the financial agreement covers is prohibited. It is important to note that a BFA is essentially a contract and all contracts can be set aside in certain circumstances, for example, where agreement has been obtained by fraudulent means or there is a material change in circumstances.
Although they offer relative certainty, financial agreements are not rock solid and they can be overturned in some very specific occasions. Section 90K of the Family Law Act lists the first few circumstances, notably where:
- Any of the above formal steps have not been satisfied
- You have not disclosed, or have concealed or misrepresented, the extent of your assets and resources at the time you entered into the agreement
- It is impracticable for the agreement to be carried out, for instance; a change has occurred relating to a child which will cause that child to suffer hardship; or you entered into the agreement by fraud, or for the purpose of defrauding another
Your legal advisor can offer more information on these, especially as certain standard clauses in financial agreements may potentially be void.
For instance, section 90F overturns any clause that prohibits the courts from instituting a maintenance agreement if, at the time, the other party was unable to support themselves. A financial agreement can also be overturned by contract law, because they are, in essence, a contract. These situations arise where:
- In the process of getting one party to sign the agreement, the other party engaged in conduct that was highly unethical or fraudulent;
- The agreement is vague and it is unclear what it intends to do;
- Either party forced the other person to sign the agreement; or
- Both parties sign a new agreement terminating the financial agreement.
All of these factors should be dealt with by your legal practitioner when you receive advice regarding the BFA. Because of the difficulties involved with drafting a relatively complex document, it is recommended you also use your practitioner to draft, or help draft, your financial agreement. This will help ensure it is binding, and provide the necessary protection to both of you should the relationship fall apart.
There are risks with BFAs that can be minimised by seeking good legal advice. Neither party is required to make financial disclosure to the court (as the agreement is not filed with the court) when entering into the BFA. Thus, the agreement need not be equal (though you can certainly choose for it to be) and can favour one party over the other. The court will not set aside an agreement simply because it is “unfair”. This is partly because prior to signing the agreement, the parties must each obtain independent legal advice from a solicitor and the solicitor for each party will attach a certificate confirming that advice was given before the parties entered the agreement. This prohibits parties from arguing that, at the time of signing the agreement, they were unaware of the consequences of signing it.