A Binding Financial Agreement (‘BFA’) is an agreement which is made under certain provisions of the Family Law Act (‘the Act’). BFA’s differ from Court Orders or Consent Orders because, if strict requirements are met, they allow parties to agree to arrangements for the division of their property and superannuation, and/or for payment of spousal maintenance, that differs from the Act.
Binding Financial Agreements can be made at the beginning of a marriage or de facto relationship, during the relationship, or after separation. When made at the beginning of a relationship, they are sometimes called "Pre-nuptial" agreements.
What are the benefits of a Binding Financial Agreement?
These agreements are generally more flexible than seeking Consent Orders through the court. In theory, these agreements may contain arrangements which a court would not allow if they were included in proposed Consent Orders.
Consent Orders are reviewed by the court and assessed to ensure they are 'just and equitable' for both parties. Parties may want an agreement that they both agree is 'just and equitable' but the court may not see it as 'just and equitable'.
This would be a good time to consider a BFA as an alternative. An example might be that the agreement specifically excludes a party sharing some of the benefits that the spouse receives during the relationship such as an inheritance.
Are there disadvantages in using Financial Agreements?
Using a BFA can carry risk.
That is because, unless the formal requirements of the agreement as required under the Family Law Act are met, then it may not end up being binding, or it may be vulnerable to being set aside by a court at a later date.
Great care needs to be taken when preparing, reviewing and signing these types of agreements. Both parties need independent advice from a lawyer about certain matters before the agreement is signed. Parties to a Binding Financial Agreement cannot use the same lawyer.
What can cause a Binding Financial Agreement to be unenforceable?
There is a range of issues that can make a BFA unenforceable.
The common one is the failure of one of the parties to fully disclose their assets and the relevant values of the assets. Another common issue is where one party is more dominant than the other leading to an agreement which is demonstrably unfair and unbalanced.
There have also been cases where the court has set aside a BFA because there has been a substantial change of circumstances, such as where a party contracts a life-threatening illness or the birth of a child after the signing of the agreement. Or a BFA might be set aside as a result of undue influence during negotiations.
Generally, if the parties were not provided with sufficient legal advice before signing the agreement, the agreement will also fail to be enforceable.
Why have a Binding Financial Agreement instead of Consent Orders?
Unlike Court Orders, which are reviewed by a court before the orders are made (even though the parties have agreed to the orders), a BFA is a private agreement which is not reviewed nor approved by the court.
Parties can, therefore, agree on financial settlements, maintenance and superannuation in the way they prefer, rather than as prescribed by their entitlements under the Act.
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