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Protecting Your Financial Future: Why Consider a Binding Financial Agreement Before Entering a Relationship?

Entering into a new relationship is an exciting and important stage of life. Alongside emotional commitment, many couples also bring with them existing assets, businesses, inheritances, children from previous relationships, or financial responsibilities.

Under the Family Law Act 1975 (“the Act”), couples are able to make a Binding Financial Agreement (“BFA”) before, during, or after a marriage or de facto relationship. A properly prepared BFA can provide certainty, minimise future disputes, and protect both parties should the relationship later break down.

What is a Binding Financial Agreement?

A Binding Financial Agreement is a private contractual agreement between parties, setting out how assets, liabilities, superannuation, and financial resources will be dealt with if the relationship ends. These agreements are commonly referred to as:

• “Prenuptial agreements” (before marriage);
• “Cohabitation agreements” (during a relationship); or
• “Separation agreements” (after separation).

Why Consider a BFA Before Entering a Relationship?

1. Protection of Pre-Existing Assets

A properly drafted BFA can assist to protect:

1. Property owned prior to the relationship;
2. Family businesses;

iii. Farms and rural properties;

1. Investments;
2. Inheritances;
3. Trust interests; and

vii. Superannuation entitlements.

This is particularly important where one party enters the relationship with significantly greater assets than the other.

2. Certainty and Predictability

A properly drafted BFA excludes the court from any property disputes following separation. Under the Act the court has discretion to determine asset division in consideration of such matters as financial contributions; future needs and ongoing financial obligations.

3. Protection of Family Wealth and Children from Prior Relationships

Regretfully, very often children from a prior relationship harbour concerns regarding what they see as their inheritance. The presence of a well drafted BFA can act to ally such fears as it sets out in the event of separation ,the financial arrangements have been clearly provided.

4. Reducing Litigation Risk and Costs

Relationship breakdowns can result in lengthy and expensive litigation where a valid BFA will significantly minimise the likelihood of contested property proceedings and associated legal costs.

5. Privacy

Unlike Court proceedings, BFAs are private agreements. They are not ordinarily filed publicly with a Court and may assist parties in maintaining confidentiality regarding financial affairs.

Under What Conditions is a BFA Valid?

For a BFA to be legally binding under the Act, strict requirements must be satisfied which include:

1. Each party must receive independent legal advice regarding the effect of the agreement on their rights, and the advantages and disadvantages of entering into the agreement;
2. Each solicitor must sign a certificate confirming that advice was provided;
3. The agreement must: be in writing;
4. The agreement must be signed by both parties;
5. Must clearly identify the relevant section of the Act that the BFA has been drafted; and
6. Must disclose all the assets, liabilities, superannuation and financial resources of each party.

When Can a Court Set Aside a BFA?

Although BFAs can be highly effective, Courts retain power to set them aside in certain circumstances that include:

1. When an agreement does not comply strictly with legislative formalities. Technical deficiencies may invalidate the agreement;
2. When parties have not entered the agreement freely and understand the consequences of the agreement;
3. In the presence of fraud or non-disclosure;
4. Where there is evidence of duress, undue influence or unconscionable conduct;
5. Where an agreement has been entered to defeat creditors;
6. Where it would be impracticable to implement the term so the BFA; or
7. Where material changes have occurred, such that implementation would cause hardship to children of the relationship.

A BFA may not be suitable for all relationships. Any decision must be made regarding the parties’ individual circumstances regarding their assets, whether there are any expected inheritances, any business or family structures or future earning capacities and their intentions.   

I continue to assist couples to draft their BFA and understand that such discussions regarding financial arrangements at the beginning of a relationship, can sometimes feel uncomfortable.  However, when I explain that it should be viewed as a sensible form of financial planning similar to insurance or estate planning, many obstacles evaporate. A properly prepared agreement acts to provide clarity, reduce uncertainty, and help preserve relationships by ensuring expectations are understood from the outset.

If you or anyone you know wishes to discuss whether a BFA is suitable to their circumstances, please do not hesitate in contacting me.

Wishing everyone a wonderful day.

Jeffrey Choy

JCL Legal

0419 233 670

jeffrey@jcllegal.com.au

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Legal Disclaimer: This guide is for informational purposes only and does not constitute legal advice.