Are they worth it? Binding Financial Agreements (BFA)

Although you may know them as “pre-nups”, Binding Financial Agreements (BFAs) serve as useful instruments for individuals aiming to safeguard their assets in the event of a relationship breakdown. BFAs provide couples with a structured framework to delineate how their finances and property will be managed. BFAs can be entered into before, during or after a relationship.

What makes a good BFA?

With a dedicated team of family lawyers at Conditsis Lawyers, we often get asked “is this even worth the paper it is written on?”; a good question.

The enforceability of a BFA hinges on its compliance with stringent legal criteria set out in the Family Law Act 1975 (Cth). Several key factors contribute to the validity and enforceability of these agreements:

1. Independent Legal Advice: Both parties must receive independent legal advice from separate lawyers before signing the BFA. This requirement ensures that each party fully understands their rights, obligations, and the implications of the BFA (including the advantages and disadvantages of entering it).
2. Complete Disclosure: Complete disclosure of all assets, liabilities, and financial resources is essential. Failure to provide accurate and comprehensive financial information can invalidate the BFA if one party is later found to have withheld material facts.
3. No Undue Influence or Duress: BFAs must be entered into voluntarily and without coercion. If it can be demonstrated that one party was pressured, threatened, or unfairly influenced into signing the BFA, it may be set aside by the court.
4. Proper Drafting and Execution: The BFA must be carefully drafted to address all relevant financial matters, including property division and spousal maintenance. It should be executed in accordance with legal formalities, such as signatures from both parties and their respective lawyers.
5. Certainty and Clarity: The BFA should provide clear and unambiguous terms regarding how assets will be divided in the event of separation. Ambiguities or vague provisions may render the BFA susceptible to challenge.

When will the BFA be set aside?

Courts have shown willingness to set aside BFAs in the following circumstances:

1. When the BFA was obtained by fraud, for example, non-disclosure of a material matter.
2. The BFA was entered into to defraud/defeat a creditor or with reckless disregard to the interests of the creditor.
3. The BFA was obtained for the purpose of defrauding another person who is a party to a de facto relationship with the party.
4. Where a party fails to disclose assets relevant to the BFA.
5. If the BFA is void, voidable or unenforceable, for example, it was drafted incorrectly, not signed, no independent legal advice was obtained or disclosure was incomplete.
6. Where circumstances have arisen since the BFA was made that make it impracticable for the BFA or part of the BFA to be carried out.
7. After the BFA was made, a material change in circumstances that relate to the care, welfare and development of a child of the relationship has occurred. As a result of the change, someone will suffer hardship if the court does not set the BFA aside.
8. If a party to the BFA engaged in unconscionable conduct or duress in the process of developing the BFA, for example, threatening something (no wedding, no financial support for a child) if the BFA is not signed.

The above grounds are detailed in sections 90K and 90UM of the Family Law Act 1975 (Cth).

So, do I get a BFA?

Even if the requirements of the Family Law Act 1975 (Cth) are complied with, a party to the BFA may still take it to court and argue that it should be set aside for one of the reasons set out above. However, your reliance on the BFA will depend on whether there has been compliance with the legal prerequisites paired with meticulous drafting.

BFAs are most beneficial when both parties approach the process in good faith, with transparency and a mutual understanding of their financial rights and responsibilities. Certainly, we advocate for BFAs in circumstances where they can set out the intention of the parties in what they wish to do in the event of a relationship breakdown.

We recommend individuals considering a BFA should seek guidance from our experienced team of family lawyers who can provide tailored advice to ensure the BFA is drafted to withstand potential challenges.