A question we hear often is “what exactly is a Binding Financial Agreement?”
We’ve certainly heard the term “prenup” thrown around all too often in Hollywood movies. You can picture the trope of a set of wealthy parents forcing their soon to be child-in-law to sign a prenup just in case things turn sour.
However, the American concept of a prenuptial agreement (prenup for short) exists quite differently in Australian family law. Even so, Australians commonly (and often incorrectly) use “prenup” when referring to couples who agree on how their finances will be dealt with if separation occurs.
In Australian family law, these types of agreements are called Binding Financial Agreements (‘BFA’) and they operate slightly differently to the American concept.
What does a BFA do?
A Binding Financial Agreement is a contract between a couple that sets out their agreement for financial separation in the event of a breakdown in their marriage or de facto relationship.
A properly drafted and executed BFA will exclude the Family Court’s jurisdiction in property settlement, which would ordinarily be available to a married couple or de facto couple pursuant to the Family Law Act 1975 (Cth) and the Family Court Act 1997 (WA) respectively.
Effectively parties may end up surrender certain legal rights embedded within family law legislation. That includes the ones intended to help litigants achieve just and equitable outcomes property proceedings.
When can a BFA be entered into?
A couple may enter into a Binding Financial Agreement before, during and even after a marriage or de facto relationship has ended.
One of the main reasons why we should avoid confusing BFAs with prenuptial agreements, is that couples must enter into prenuptial agreements before a marriage or de facto relationship commences. Hence the suffix of pre (“before”) the nuptial (“marriage”).
What can a BFA cover?
A Binding Financial Agreement can cover almost all financial matters between parties that the Family Court would otherwise be able to deal with. This includes:
- property ownership;
- entitlements to financial resources;
- division of superannuation (for married couples); and
- spousal maintenance.
It is important to remember that BFAs cannot deal with property or financial resources acquired after divorce. This is different to spousal maintenance. A party must make payments under this type of agreement during a marriage, after divorce, or both.
BFAs are able to be more flexible than Family Court orders and cover conditional arrangements and lifestyle clauses. This flexibility does have it’s limits though. Take for example “fidelity clauses.” It is currently unclear whether the Family Court would consider enforcing a breach of such clauses.
BFAs can also deal with child maintenance and child support. However, it may be safer to have a separate Binding Child Support Agreement to ensure the stability of both agreements.
What is the difference between a regular financial agreement and a BFA?
A financial agreement can be entered into by a couple, reflecting how they agree for finances to be dealt with if there is a breakdown in the marriage or de facto relationship. The Family Court can take this into account, as well as provide certain equitable and legal entitlements. But it does not oust the jurisdiction of the Family Court as a Binding Financial Agreement does.
In order for a financial agreement to become a BFA, it must meet certain legislative requirements. Part VIIIA of the Family Law Act 1975 (Cth) set out these conditions for married couples. Part 5A Division 3 of the Family Court Act 1997 (WA) sets them out for de facto couples.
All parties should obtain independent advice from a lawyer about the effect of the BFA. This is because there can be significant advantages and disadvantages of making the agreement that you should be aware of at the outset. Hence a certificate attesting to the satisfaction of this requirement must form part of the BFA.
Note that an agreement could be voided or set aside if it does not meet any legislative requirements.
Do I need a BFA?
Seeking tailored legal advice will give you the best answer to whether you should enter into a Binding Financial Agreement.
We explore some of these considerations in our next post: Should I enter into a Binding Financial Agreement?