Get a Binding Financial Agreement

For most of life’s vicissitudes there is an insurance cover. For managing the risk of a marriage or de-facto relationship breakdown there is a financial agreement also known as finding financial agreement (BFA). Such agreements are the only security that parties planning to enter a de-facto relationship or already married have at their disposal for the protection of their assets if the marriage sours. But beware, BFAs could not always be relied upon as legally binding as several recent court decisions in Australia have demonstrated.

In December 2000 changes to the law allowed parties about to marry or who were married to sign a binding financial agreement about the financial arrangements should their marriage break down. Two years later, in December 2002, changes to the Family Court Act 1997 (WA) made BFAs available to de-facto couples including those of the same sex who have lived in WA.

The forum where decisions about the division of assets of splitting couples are made is the Family Court of Western Australia. A valid binding financial agreement however removes the jurisdiction of the court. A BFA prevents either party from applying to the court for division of assets in property settlement different from the terms of the agreement. A BFA does not bar the parties from seeking an order from the Family Court to set the agreement aside.

When can I enter into a Binding Financial Agreement?

• Before marriage or before moving together for de-facto couples

• During marriage or cohabitation

• After separation

What does it cover?

• All or selected property of the parties acquired before or during the marriage

• Financial resources – for example any inheritance that a party may receive

• Rules about buying and owning property – the parties may agree in whose name the property will be registered in, who will pay for the mortgage etc

• The parties may agree on the division of their respective superannuation interests in case of separation

• Financial support (spousal maintenance)

• Any incidental issues

What a BFA does not cover?

• Non-matrimonial issue such as house duties

• A BFA is not a replacement for a valid will. It is however part of a person’s estate plan.

The costs for preparation of a BFA is only a fraction of the costs of property settlement litigation. BFAs cost around $2,000 compared to a court litigation likely to cost tens or even hundreds of thousands of dollars.

• Provide certainty by means of a predetermined outcome in the case of separation

• Protection of personal and business assets from future dispute

• Protection of inheritances received during the relationship

• In contrast to court made property settlement orders a BFA need not be a just one. Therefore, one party which has significantly more assets than the other party can protect their assets better than by court orders

• The agreement stays private as the matter does not have to be argued in open court

• Financial disclosure is required for the validity of the agreement but no further disclosure is necessary to the court

• The recitals (the introduction to the agreement) can be used to give the background to the agreement and to justify its term

• The same tax concessions apply as to court orders, e.g. transferring property from one spouse to the other does not attract more than $20 stamp duty payment. Exceptions are company assets

• Unless agreed otherwise a BFA will bind the estate in the event of death of one of the parties

• A BFA can reduce the potential for argument between the parties in relation to financial matters both during and after their marriage and between the surviving spouse and the family of the deceased partner

• Preservation of family businesses

• Protection of the parties’ superannuation interests

• Sets out maintenance arrangements in the event of separation

• Fraud, including material non-disclosure

• A party to the agreement contracted for the purpose of defrauding or defeating a creditor or creditors of that party

• The agreement is void, voidable or unenforceable

• Circumstances have changed which make it impossible or impracticable for the agreement, or a part of the agreement, to be carried out

• A change in circumstances has occurred that was not dealt with or foreshadowed in the agreement and, because of the change, a party to the agreement will suffer hardship

• A party’s conduct in making the agreement was, in all the circumstances, unconscionable

• The agreement covers at least one superannuation interest that is an “unsplittable interest”.

A financial agreement is suitable for parties:

• intending to marry

• intending to live in a de-facto relationship

• who are married and not separated

• who were living in a de-facto relationship and have separated

• living in a de-facto relationship and who have not separated

• who are married and separated but not divorced

• who are divorced.

• Parties with significant disparity in personal wealth

• Parties entering second marriages – to avoid stress and costs with potential breakdown of marriage and provide for children of previous relationships

• Parties who want to keep assets acquired before marriage separate to jointly acquired assets.

• If a party is eligible for income tested pension, allowance or benefit when the agreement comes into effect

• If the parties want to include in the agreement parenting issues such as time the children will spend with each parent

• Illegal agreements

• Division of household responsibilities

• Not suitable for parties who wish to sign the agreement within a short period before the wedding because of the potential for a court to set it aside due to perceived undue influence, usually by the party in the stronger bargaining position.

No, you cannot change unilaterally an existing financial agreement.

You and your spouse can terminate the existing agreement by either entering into a subsequent binding financial agreement or signing a termination agreement.

You and your spouse must each receive an independent legal advice before entering into a termination agreement.