The phrase “Binding Financial Agreement” or BFA’s is a collective term for a variety of different agreements which can be entered into during a relationship.
Since 2001 married couples in Australia could enter into a BFA pursuant to the Family Law Act. Until 2009 de facto couples were required to rely upon the relevant state legislation (the Property Law Act in Queensland) to enter into a “Cohabitation Agreement” to regulate their financial relationship. In 2009 the Family Law Act was amended such that de facto property settlement issues were able to be dealt with under the federal legislation, thus placing all disputes in relation to the division of assets of a relationship under the one law.
Entering into a Binding Financial Agreement enables parties to a relationship to reach agreement, sometimes in advance, about who their assets, liabilities and financial resources will be dealt with upon the conclusion of the relationship (if that occurs).
What are the benefits of having a Binding Financial Agreement?
The benefits of a BFA will depend on each individual relationship, however in general terms, some of the advantages can include:
- Having your own rules in place about the financial aspects of your relationship, made in happier times, often results in an agreement which is more likely to be considered by all parties to be fair and reasonable.
- It can provide comfort and certainty for a party who has already been through a long and protracted property settlement dispute.
- A BFA can protect pre-existing assets from claims by the other party to the relationship, which is particularly relevant and important when one party is in a superior financial position to the other. Often one party has accumulated assets prior to the commencement of a relationship without contribution from the other party and it is not to be unexpected that they wish to ensure those assets remain theirs upon separation. Further, a party could be likely to receive an inheritance from their family, the receipt of which they also wish to protect.
- Binding Financial Agreements can dictate how joint property can be acquired, financially maintained and dealt with if separation occurs.
- Post separation property settlement negotiations are often more cost effective and timely if a BFA is in place.
- When combined with effective estate planning, a BFA can ensure that property passes through generations as it is intended to.
- There is stamp duty and Capital Gains Tax relief for transactions entered into pursuant to a BFA.
What are the disadvantages of having a Binding Financial Agreement?
As with any legal process, there are risks and possible concerns regarding entering into a Binding Financial Agreement and again, those will depend on the circumstances of the individual relationship and couple. In general terms, some disadvantages of a BFA can include:
- There is no regulatory or supervisory role adopted by the Court when parties are entering into a BFA. BFA’s are not registered with the Court and the Court only becomes aware of the terms of a BFA if they are challenged by a party to them.
- Third parties cannot be bound by the terms of a BFA, except in the case of a superannuation splitting agreement.
- By necessity, the terms of a BFA can be complex and require careful drafting and consideration, which can result in costs increasing, subject to the complexity of the matter and the necessary changes requested by each party and/or their advisors.
- Each party is required to obtain legal advice regarding the terms of the BFA and the effect of the agreement on their rights. Whilst we view it a good thing that parties are required to obtain such advice, it can lead to disputes about the terms of the agreement, if one party is cautioned against signing the document.
- The law surrounding Binding Financial Agreements is complex and uncertain, particularly regarding the circumstances within which a Court would set aside a BFA.
So, is a Binding Financial Agreement really worthwhile?
The team at Marino Law wholeheartedly support the use of a Binding Financial Agreement as part of an overall asset protection strategy or as a method by which to amicably resolve and document your property settlement agreements.
However, for a BFA to be binding and enforceable and therefore worthwhile, the requirements of the Family Law Act must be complied with strictly. Often parties seek advice on a DIY precedent Binding Financial Agreement, downloaded for a fee and completed by the parties. These agreements are fraught with danger and often not worth the costs incurred by the parties to download them.
Fundamental rules for a Binding Financial Agreement include:
- It must be in writing.
- It must be stated to be entered pursuant to the correct section of the Family Law Act.
- It must be signed by all parties.
- It must be signed only after each party has received independent legal advice on the nature of the agreement, the effect of the agreement on their rights, the advantages and disadvantages of the agreement to the party at the time of entering into it.
- Each parties Solicitor must sign a Certificate of Legal Advice and copies of that Certificate must be provided to each party.
Unfortunately, there is no iron clad guarantee that after entering into a BFA, a Court will not subsequently set it aside. However, simply having one in place does reduce the potential for Court proceedings.
The Family Law Courts do not set agreements aside, just because they are unfair. There must be conduct such as fraud, duress, unconscionable conduct or material non-disclosure before a Court will consider intervening in the agreement reached.
The family law team at Marino Law have been drafting Binding Financial Agreements since their inception and are able to ensure that no matter your circumstances, the best possible protection can be afforded to you against property settlement claims in the future. If you are seeking to enter into a Binding Financial Agreement, irrespective of the status of your relationship, it is important to obtain expert legal advice.
Marino Law are available to provide efficient, cost effective and expert representation in relation to the negotiation of terms of a BFA, drafting a BFA and advising you upon them. Our expertise extends to critically assessing your existing BFA and discussing with you the potential for applying to set aside the agreement, taking into account the circumstances which existed at the time of entering into the agreement, or your current and changed circumstances. It is important to act quickly if you consider that there is a need to set aside a Binding Financial Agreement.
Contact our Accredited Specialist led team without delay for assistance in all family law matters.