What is a binding financial agreement (BFA) ?

It is specified in the Family Law Act 1975 (Cth) that parties in a marriage or a de facto relationship have the right to enter into a binding financial agreement in order to better manage their properties and liabilities during the subsisting of their relationship. This allows the parties to reach an agreement which is acceptable to both parties in advance and to avoid trouble if their relationship breaks down.

A binding financial agreement falls in the usual jurisdiction of the Federal Circuit and Family Court of Australia. Some people also call a binding financial agreement before marriage a “pre-nuptial agreement” or a more commonly used short name “pre-nups”. There are also binding agreements that may be entered into during a relationship known as cohabitation agreements for couple who intend to live together but have no plans for marriage.

You may think a binding financial agreement as a private contract between two parties in a relationship include same-sex couples who intend to formalise an agreement about how they deal with their assets and liabilities including their superannuation, motor vehicles, houses, apartments or even shares and stocks that they accumulated prior to the relationship. A binding financial agreement can be entered into under Part VIIA; while for the de facto relationships the governing law could be found in Division 4 of Part VIIAB in the Family Law Act 1975 (Cth).

Usually, a binding financial agreement can cover all the issues the partis have concerns about, but it could also deal with some specific matters the parties intend to focus on. It is worth noting that if the couples wish to make a “cover the field agreement” to address most of the issues of properties, it is suggested that any of the overseas assets owned by the parties should be included in the binding financial agreement as well if the couple own any overseas properties.

Once the parties have entered into a binding financial agreement, it is presumed that they have willingly and knowingly waived or otherwise given up their right to allow the Court to determine the properties or other financial matters in the event of separation.

What needs to be included in a ‘pre-nup’?

The Family Law Act 1975 (Cth) sets out some necessary elements for a financial agreement to be binding. The most important thing before both parties enter into a binding financial agreement is that parties have obtained independent legal advice regarding the agreement they are going to sign. This element is enshrined in section 90G of the Family Law Act for married couples and section 90UJ for de facto relationships in the Family Law Act 1975.  

As previously mentioned, the parties are required to obtain independent legal advice by engaging their own lawyers. Before an agreement can be effected, the respective legal practitioners are required to provide the parties involved with a signed statement. Subsequently, each party exchanges the statement for their record.

The parties need to provide their lawyers with their personal details and the details of the marriage. It is also suggested that a list of their assets and liabilities be provided to their lawyers. If they have any properties including joint and separate properties, the valuation of an independent valuer should be obtained before the agreement is made.

A binding financial agreement before marriage and de facto relationship helps relieve the stress and uncertainty associated with entering into a relationship. Provided that the binding financial agreement is done in a proper way pursuant to the Family Law Act, it not only prevents the potential financial disputes during the relationship but also avoids having the matter dealt with by the Court in the event of separation.

How to void or terminate a BFA?

What if, after I have signed a pre-nup but later decide to terminate while my partner refuses to do so? How to void or terminate a BFA is a common concern for most people who have entered into a BFA and later decided to change their mind.

The Court has the power to set aside the agreement when it deems appropriate even if parties have taken reasonable steps to make it binding. Married people who intend to have the court set aside a binding financial agreement will need to refer rely on section 90K; while for people who are in a de facto relationship,  the governing section is 90UM in the Family Law Act.

Generally speaking, there are two methods to terminate a binding financial agreement. The first one is by both parties’ consent to terminate the agreement. The parties can enter into a termination agreement according to the section 90J for people who are in a marriage and 90UL for de facto relationships of the Family Law Act. The second option is that the parties enter into a new agreement with a clause specifying that the former agreement is not in force anymore. Once parties involved singed the new agreement or the termination agreement, the former BFA will not be valid anymore.

Another way to void a BFA is via an application to the Court seeking to have the problematic BFA to be set aside by the Court. For example, the BFA may be set aside if the Court  is satisfied that one of the parties entered into the agreement by fraud. This includes but not limited to forged signature and failure of full and frank disclosure. If the court considers that the parties entered into this agreement for the purpose of avoiding creditors or hiding assets from bankruptcy, the agreement will also be deemed unenforceable. For parties who entered into a pre-nup without seeking proper independent legal advice or the agreement was signed under undue influence or duress. the court may also deicide that the agreement be voided or set aside.

Seek independent legal advice on a BFA

Binding financial agreement is a complicated area in Family Law, it is required by the Family Law Act that parties of a binding financial agreement must seek independent legal advice from an Australian legal practitioner before they sign BFA.

If you or your partner intend to make a binding financial agreement before entering marriage or de facto relationship, contact us now and speak to one of our highly qualified and experienced family lawyers at Genesis Edge.  We are passionate about protecting your interests.