Binding Financial Agreements (BFAs) offer couples and separated couples a sense of certainty and control over their financial matters. These agreements, often set up before or during a marriage, as well as after separation, can regulate finances during the relationship and/or outline the distribution of assets and financial resources, among other things, in the event of separation or divorce. Designed to provide clarity and prevent disputes, BFAs are essential for some in planning the financial aspects of the breakdown of a relationship. Are BFAs different to prenups? No, it is just a different terminology.
What is a Binding Financial Agreement?
A Binding Financial Agreement (BFA) is essentially a written agreement between two or more parties concerning a range of matters such as the distribution of property in the event of separation or divorce, regulation of finances during a relationship and spousal maintenance as some examples. Typically BFAs are signed either before cohabitation, before marriage (prenuptial, or prenup as they are sometimes known), during the relationship, or after separation or divorce. This agreement allows couples and separated couples to manage their financial affairs without court intervention.e
For a BFA to be legally valid, specific requirements must be met. These include a full disclosure of each party’s financial situation, ensuring the agreement is entered into voluntarily without coercion or fraud etc. Both parties must receive independent legal advice before signing the agreement. This helps each individual understand their rights, the advantages and disadvantages of entering into the BFA and the effect of the BFA on their rights. The document must be in writing and signed by both parties, making it a formalised agreement recognised by Australian courts.
Not sure if you need a BFA? Check out our article that discusses if you need a Binding Financial Agreement or not.
Key Benefits of a Binding Financial Agreement
Here are a few of the benefits of signing a BFA.
Clarity and Protection
BFAs provide clear guidelines for asset and financial management upon the breakdown of a relationship. They ensure transparency in how assets will be divided or managed, offering invaluable clarity.
Reduces Conflict
By setting predetermined terms, BFAs can help avoid emotional and financial stress from legal disputes over assets. They’re especially beneficial in relationships with significant property and assets, protecting individual interests.
Predictability
BFAs offer security and predictability, aiding in planning for potential relationship breakdowns. This feature is crucial for effective long-term financial planning, allowing informed decisions on investments and property.
Proactive
BFAs provide a proactive strategy for managing financial relationships. They allow couples to autonomously define their financial futures and protect their assets, leading to more harmonious financial relationships.
Can a Binding Financial Agreement Be Overturned?
Binding Financial Agreements are designed to provide stability and certainty, however, certain circumstances can lead to these agreements being challenged or even overturned which is known as being “set aside”.
One of the grounds where a BFA may be overturned is in situations where the agreement was obtained by fraud (including non-disclosure or a material matter). This can include the concealment or misrepresentation of assets, financial resources and/or income as some examples. For example, if there is evidence that one party has failed to disclose significant assets or Trust interests at the time of signing the BFA, this could lead to a party applying to the court for orders to set the BFA aside.
Undue influence or coercion can also be other grounds for challenging a BFA, relevant to a party engaging in conduct that was, in all of the circumstances, unconscionable. This can occur when one party is pressured into signing the agreement without free will, often due to an imbalance of power within the relationship. It is important that both parties enter into a BFA willingly and without undue pressure.
If the BFA was entered into without proper legal advice, or if the legal advice provided was inadequate, this could be a basis for overturning. Australian family law mandates that both parties receive independent legal advice to ensure that they fully understand their rights and the terms of the agreement etc.
Material changes in circumstances, especially those relating to a child of the relationship and hardship, can also lead to a BFA being challenged in the Court by a party. In such an application, the Court would generally consider whether as a result of the change, the child or a party who has caring responsibility for a child will suffer hardship if the Court does not set the BFA aside.
So while BFAs provide a solid framework for managing financial relationships, they are not watertight and there are no guarantees that they won’t be challenged in certain circumstances set out in the Family Law Act 1975 (Cth). Parties entering into a BFA should ensure transparency and proper legal guidance from someone like Daykin Family Law to uphold the strength of their agreement.
The Process of Challenging a BFA
Contesting a Binding Financial Agreement in court is a process that involves several steps.
The initial step in challenging a BFA typically involves seeking expert legal advice. A family lawyer can assess the validity or strength of your claim against the BFA and legislation, and guide you through the legal process. They can help identify if there are grounds for the challenge/application to set aside a BFA, such as referred to above.
Once a valid basis for contesting the BFA is established, the next step may be to seek to negotiate with the other party to resolve the issues. This can take place via lawyers or in a mediation for example.
In some cases, a court application may be necessary. This application should detail the evidence upon which the application to set the BFA aside is made. The legal process may involve pre-trial conferences or mediation attempts to reach a resolution without a full court hearing.
If the matter proceeds to a final hearing in court, both parties will present their arguments and evidence. This stage is where the roles of legal counsel are most pronounced. Solicitors assist in the preparation of trial documents such as affidavits and Case Outlines. Lawyers (generally Barristers) for each party will make submissions, test the evidence under cross-examination of witnesses and present evidence to the court. The Judicial Officer will consider the evidence and make a decision as to whether orders should be made for the BFA to be set aside.
Case Studies: Hypothetical Examples of Overturned BFAs
To illustrate how BFAs can be challenged and overturned, let’s examine a few hypothetical scenarios.
Scenario 1: Concealment of Assets
John and Sarah signed a BFA during their marriage, agreeing on the division of their assets in the event of separation. Years later, during a dispute, Sarah discovered that John had undisclosed investments worth a significant sum at the time of signing the BFA. Sarah sought legal advice and contested the BFA in court. The court found that the BFA was obtained by fraud due to John’s failure to make appropriate disclosure to Sarah at the time of entering into the BFA. The BFA was set aside.
Scenario 2: Coercion and Undue Influence
Emma and Mark entered into a Binding Financial Agreement shortly before their marriage. Emma, at the time, felt pressured by Mark and his family to sign the agreement quickly. The wedding invitations had gone out and Mark presented Emma with a BFA 1 week before the wedding. Mark told her to sign it or she’ll be on the streets. Years into the marriage, when the relationship soured, Emma challenged the BFA on the grounds of unconscionable conduct by Mark. The court, upon reviewing the circumstances under which the BFA was signed, set the BFA aside.
Scenario 3: Issues with Independent Legal Advice
Liam and Chloe entered into a BFA soon after they married. Chloe spoke to a lawyer for advice and showed her the BFA before she signed it. The lawyer spent 15 minutes with Chloe and did not discuss the BFA terms with her, just BFAs generally. Chloe signed the BFA during the meeting. Later when the relationship broke down, Liam’s lawyer sent correspondence to Chloe about putting the BFA’s terms into effect. Chloe did not understand what was being put to her as she never received legal advice on the terms or what impact the BFA would have on her. The terms were harsh against Chloe and mostly favoured Liam. Chloe applied to the court for orders that the BFA was not binding, one of the reasons being that she did not receive independent legal advice under the legislation. Liam tried to argue that despite this, it would be unjust and inequitable if the BFA were not binding on the parties and he sought orders declaring that the BFA is binding on them both. Liam failed in his arguments and the court made orders as sought by Chloe.
Each of these scenarios underscores the importance of full disclosure, voluntary agreement and quality advice in the preparation and negotiation of BFAs. They also highlight that while BFAs can be binding, they are not immune to legal scrutiny and can be overturned in certain circumstances under the legislation.
How to Ensure Your BFA Stands the Test of Time
Creating a Binding Financial Agreement that endures over time and withstands legal challenges involves careful consideration, transparency, and adherence to legal standards. Here are some tips and best practices to ensure your BFA is robust and enduring:
Prioritise Full Disclosure
One of the most critical aspects of a strong BFA is the full and frank disclosure of both parties’ respective financial circumstances. This transparency minimises the risk of future disputes over undisclosed assets.
Seek Independent Legal Advice
Each party must obtain independent legal advice before entering into a BFA. This ensures that both individuals fully understand their rights and the implications of the agreement, among other things. The quality of legal advice is important also given case law on this issue.
Ensure Fairness and Reasonableness
A BFA that is heavily skewed in favour of one party may be more likely to face challenges. Crafting an agreement that is fair and reasonable for both parties can enhance its stability. Consider the future implications of the agreement, especially in scenarios like changing financial circumstances or the care of children.
Review and Update When Need Be
Circumstances change, and so might the relevance of a BFA. Regular reviews of the agreement in light of new life events, such as the birth of a child or significant changes in financial status, can ensure the BFA remains applicable and fair. Amendments can be made with the consent of both parties to reflect these changes and there are strict legal requirements to adhere to when varying the terms of a BFA.
Document the Process
Keeping a record of the negotiation and drafting process, including the advice given by legal professionals and the rationale behind decisions, can be important. This documentation can provide clarity and support the validity of the BFA if its contents are ever questioned.
Use Clear and Unambiguous Language
The wording of the BFA should be clear, concise, and free of legal ambiguities. Unclear language can lead to different interpretations, which might result in disputes. High quality legal drafting helps in ensuring the language used accurately reflects the intentions of both parties.
Family Lawyers For Binding Financial Agreements
BFAs are powerful tools. Their strength can lie in their drafting and the ongoing cooperation of the parties involved. Regular review and legal counsel can ensure that your BFA not only meets current legal standards but also reflects your changing life circumstances.
Whether you are considering if you need a binding financial agreement, need to review an existing one, or find yourself in a position where you may need to challenge or defend a BFA, seeking professional legal advice is advised. With expertise in family law and a deep understanding of BFAs, Daykin Family Law is equipped to provide you with the guidance and support you need. Shannon Daykin is a Queensland Law Society Accredited Family Law Specialist with a depth of experience in drafting and advising on BFAs, including in complex and high net wealth matters. Contact us today to ensure that your financial future is secured and managed according to the highest legal standards.
