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Are Binding Financial Agreements Worth It?

Apr 24, 2024

Binding Financial Agreements (BFAs), which are often referred to as prenuptial agreements in other countries, are legal contracts between couples which describe the management and distribution of financial assets during a relationship and after a relationship breakdown. These agreements can be entered into before a marriage/de facto relationship, during a marriage/de facto relationship, or even after a divorce/breakdown of a de facto relationship.

The importance of financial planning in relationships cannot be overstated. As couples plan their lives together, understanding and agreeing upon financial matters can lay a strong foundation for a secure future. 

BFAs can help both parties develop a clear understanding of what happens with assets during their relationship, potentially reducing disputes and promoting transparency. In this article, we investigate whether BFAs suit your circumstances.

What Is a Binding Financial Agreement (BFA)?

A BFA is a legal contract in Australia that allows couples to make enforceable arrangements which describe how assets and financial resources are owned during a relationship, or how they are divided, should their marriage or de facto relationship break down.

The legal authority underpinning BFAs is created by the Family Law Act 1975 (Cth). This legislation allows couples to privately determine how their assets and financial resources will be allocated without court intervention. The objective is to allow parties to autonomously manage their financial affairs and provide certainty in the event of a separation.

To be legally binding, several conditions must be met:

  1. Written Agreement: The BFA must be in writing and signed by both parties.
  2. Independent Legal Advice: Each party must have received independent legal advice before signing the agreement. This advice must cover the effect of the agreement on their rights, the legal consequences of, and the advantages and disadvantages of entering into the agreement at the time the advice was provided.
  3. Disclosure: There must be full and frank financial disclosure between the parties before the agreement is signed.
  4. Voluntary: The entire process must be without pressure or duress.

A BFA in Australia remains legally binding indefinitely unless terminated by a mutual agreement between the parties or set aside by a Court under circumstances such as fraud, undue influence, or significant changes in either party’s circumstances (particularly around child welfare).

Benefits of BFAs

1. Security and Clarity in Financial Matters

BFAs provide a comprehensive and transparent framework for the management and division of financial assets and liabilities between partners. These agreements are meticulously detailed, specifying which assets are shared and which remain separate, how future earnings and debts will be treated, and the procedures for managing financial issues upon the dissolution of the relationship. This level of detail brings a clarity which is designed to protect each party’s financial interests.

BFA’s set out who owns an asset and who will be paying for the costs associated with it, preventing misunderstandings and disputes in the future. For instance, a BFA can outline the expectations for handling increases in asset value, inheritance gains, and investments made during the relationship. 

The security provided by a BFA extends beyond emotional reassurance—it offers a strategic advantage in financial planning. Couples can confidently plan their financial futures, knowing their personal assets and liabilities are protected regardless of the relationship’s outcome. This is especially advantageous in complex financial situations, where significant assets or businesses are involved, protecting them from potential family law claims.

2. Protection of Assets and Inheritance

One of the fundamental benefits of a BFA is its capacity to safeguard individual assets and inheritances. This protection is crucial for individuals entering a marriage with significant pre-marital assets or expecting future inheritances.

Furthermore, a BFA can include provisions that address the growth in value of these protected assets. For instance, if one partner owns a business prior to the marriage, the agreement can specify that any increase in the business’s value during the marriage remains that partner’s separate property. This aspect is particularly vital when substantial assets or family businesses are involved.

3. Reduction in Conflicts During Separation or Divorce

Financial disputes are frequently cited as one of the primary catalysts for prolonged and bitter divorce proceedings. By clearly defining the terms for asset division at the start of a relationship, BFAs play a crucial role in reducing potential conflicts and facilitating a more amicable and streamlined separation process. 

Because both parties have previously agreed upon how assets will be distributed, which assets will remain individual property, and how liabilities are handled, the BFA eliminates the expense associated with lengthy negotiations or Court battles that can arise when couples fail to reach an agreement on how to divide their assets on separation. It allows both individuals to approach the dissolution of their marriage with a clear understanding and agreement, about their respective assets.

Drawbacks and Considerations

1. Emotional Implications and Misconceptions

The concept of a BFA can be unsettling or offensive to some partners, introducing notions of mistrust, or lack of commitment.

It’s crucial to approach this conversation sensitively and ensure that both parties view the BFA as a tool to protect their respective assets, rather than a prelude to separation. BFAs are not required to be fair, so effective communication is crucial in understanding the practical benefits and protections that BFAs offer without casting a shadow over the relationship’s intentions.

 

2. Costs of Drafting and Legal Advice

One of the primary considerations when contemplating a BFA is the associated cost. Each party to a BFA is relinquishing significant rights, so drafting the document requires legal precision to ensure all terms are enforceable and tailored to both parties’ specific circumstances. Each party must engage their own independent family lawyer to provide advice on the agreement’s implications and validity. For a BFA to be binding and enforceable, the requirements of the Family Law Act must be complied with.

Costs should be viewed as an investment in your financial future to avoid potentially more significant costs associated with disputed property settlements after a relationship.

 

3. Conditions Under Which BFAs Might Be Challenged in Court

While BFAs are designed to be legally binding, certain conditions can render them vulnerable to challenges in Court. These agreements can be contested and potentially overturned if they were not properly drafted, if one party did not receive adequate legal advice, or if there was evidence of fraud, duress, or undue influence during their formation.

Additionally, a BFA might be set aside if there has been a significant change in circumstances—particularly those affecting the welfare of children—that were not anticipated at the time of the agreement’s execution. BFA’s are not scrutinized by the Court, unless they are challenged.

Talk To A Family Lawyer

Deciding whether a Binding Financial Agreement is suitable for you involves careful consideration of your personal financial circumstances, your relationship dynamics, and long-term objectives. At The Legal House, we understand that discussing financial agreements can be sensitive and unique, and we strive to approach these conversations with the utmost respect and professionalism.

We pride ourselves on our client-focused approach, differing from traditional legal practices by prioritising your needs and treating you with the empathy and respect you deserve. To help you navigate the complexities of BFAs, we offer a complimentary first consultation. This initial meeting allows you to experience our commitment to your welfare and legal success firsthand.

We invite you to take this opportunity to discuss your specific situation, explore your options regarding asset protection and financial agreements, and ensure that we are the right fit for your legal needs. If you’re located in Queensland, book your free consultation with us today and take the first step towards securing your financial future with confidence and peace of mind.

 

Nick Harrison

Nick Harrison

Founder & Solicitor

Nick is passionate about family law, domestic violence, and wills and estates, Nick has been practising as a Solicitor of the Supreme Court of Queensland and the High Court of Australia since 2012.  He provides practical legal advice to his clients, using his unique blend of impeccable legal skills and real-life experience as a police officer, husband and father.

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