What is a Binding Financial Agreement (BFA)?
A BFA is a way to safeguard your assets and avoid the potential emotional and financial costs of a relationship breakdown. It is a private contract between a couple that stipulates what happens to their finances and property in the event of a relationship breakdown. Once a couple enter into a BFA, the assets of the marriage will be distributed in accordance with the terms of the agreement should the relationship between the parties come to an end.
How are they entered into?
BFAs can be entered into before, during or after a relationship ends. They must be entered into without promise, threat or inducement. Both parties must disclose all information in relation to assets, financial resources and liabilities, if not, the BFA may be overturned by a court. The first step is for a draft agreement to be prepared. Then both parties must receive separate and independent legal advice in relation to the effect of the agreement on their rights and, the advantages and disadvantages to the entering into the agreement. A BFA is binding from the date it is signed and certified.
If it is correctly formulated, the Family Court may make such necessary orders for enforcement of the provisions contained in the agreement. Only an Order under the Family Law Act can set aside a BFA, unless both parties agree to vary or terminate your agreement. Variations may be made by a later agreement made by the two parties which contains a provision terminating the original BFA or via a Termination Agreement.
What are the advantages of a BFA?
If correctly prepared and executed, BFAs provide a potential solution settling arrangement sin relation to property without the use of Court. They can be drafted to enable one party to protect benefits of children from a previous relationship or other intended beneficiaries and to minimise the risk of future property claims.
A BFA may also bind the estates of each party as it survives the death of a party to the agreement.
What are the disadvantages of a BFA?
BFAs will remain binding despite any unexpected worsening of your financial circumstances. They do not provide any guarantee of protection from claims against your estate in the event of your death.
BFAs are binding and enforceable under principles of contract law. This means that as the law develops the BFA may need to be updated or amended. Future court decisions, or retrospective legislative changes may also occur which could alter your rights under a BFA. The failure to update a BFA may result in the agreement becoming non-binding or unenforceable.
Finally, because BFAs are a relatively new development in Australian Family Law, the law relating to them is not as clear cut as it may seem. Some courts have shown a propensity to overturn BFA’s which are poorly formulated, or which do not meet the stringent requirements for them to be effective.
For more information on Binding Financial Agreements or to discuss your family or other legal matters, contact us today.
DISCLAIMER: The information contained in this article is general and is not intended to be advice on any matter. It is for information only and is not legal advice. In the event of a legal problem, you should seek legal advice.