A Binding Financial Agreement can provide couples with greater certainty about how their financial affairs will be dealt with if their relationship ends.

Often referred to as a ‘prenup’, a Binding Financial Agreement (BFA) is not limited to people who are about to get married. Under Australian family law, financial agreements can be entered into before, during or after a marriage or de facto relationship, depending on the circumstances.

For some couples, a BFA is a sensible way of agreeing in advance how particular assets, liabilities and financial resources will be dealt with in the event of separation. For others, it may be appropriate after a relationship has ended as a way of finalising financial matters.

Because a BFA can affect important legal rights, it should be prepared carefully and with a proper understanding of each party’s financial circumstances.

What is a Binding Financial Agreement?

A Binding Financial Agreement is a private agreement made under the Family Law Act 1975 (Cth). Broadly speaking, a BFA allows parties to make their own arrangements about certain financial matters rather than leaving those matters to be determined by a court if the relationship breaks down.

Depending on the circumstances, financial agreements can be made:

• before marriage;
• during marriage;
• after divorce;
• before a de facto relationship;
• during a de facto relationship; or
• after a de facto relationship has ended.

The type of agreement required will depend on the parties’ circumstances and the stage of their relationship.

Why do people enter into BFAs?

There is no single reason for entering into a BFA. A common situation is where one person enters a relationship owning significantly more property than the other. For example, they may already own a home, investment properties, shares or a business and want to agree with their partner how those assets will be treated if they later separate.

BFAs can also be relevant where one or both parties:

• have children from an earlier relationship;
• own a business or have an interest in a family business;
• expect to receive a significant inheritance;
• have accumulated substantial assets before the relationship;
• have significant debts or other financial obligations; or
• simply want certainty about their financial arrangements.

Entering into a BFA does not necessarily mean that either person expects the relationship to fail. In many cases, it is simply a decision to deal with financial matters while the relationship is going well and both parties are able to consider their position carefully.

What can a BFA deal with?

The terms of a BFA should be tailored to the particular couple. Depending on the circumstances, an agreement may deal with:

• the family home and other real estate;
• savings and bank accounts;
• shares and investments;
• business interests;
• debts and liabilities;
• financial resources;
• assets acquired during the relationship;
• the treatment of particular assets following separation; and
• spousal maintenance in appropriate cases.

A BFA can be relatively straightforward or quite detailed. Much will depend on the assets involved, the parties’ respective financial positions and what they are trying to achieve.

This is one reason why using a generic online template can be risky. A document that does not properly reflect the parties’ circumstances may create uncertainty rather than prevent it.

Does each person need their own lawyer?

Yes. This is an important part of the process. The Family Law Act 1975 (Cth) contains specific requirements relating to financial agreements. Among those requirements is that, before signing the agreement, each party must receive independent legal advice about the effect of the agreement on their rights and about the advantages and disadvantages, at the time the advice is provided, of making the agreement.

One solicitor cannot provide the required independent legal advice to both parties.

Usually, one party’s solicitor will prepare the proposed agreement. The other party will then take the agreement to a separate solicitor for independent advice.

The second solicitor’s role is not simply to witness a signature. The solicitor needs to consider the proposed agreement, understand their client’s circumstances and explain what entering into the agreement means for that client.

If changes are required, those changes can be discussed and negotiated between the parties and their respective solicitors.

Can a Binding Financial Agreement be set aside?

The word ‘binding’ can sometimes give the impression that a BFA can never be challenged. That is not the case.

The Family Law Act provides circumstances in which a court may set aside a financial agreement. These include certain circumstances involving fraud, unconscionable conduct, creditors, impracticability and changes relating to the care of a child. There can also be disputes about whether the legal requirements applying to the agreement have been satisfied.

The circumstances in which a court may set aside an agreement are specific and can be legally complex.

For that reason, the preparation of a BFA should not be treated as a box-ticking exercise. The agreement needs to be considered in light of the parties’ actual circumstances, and both parties should have a proper opportunity to obtain advice before deciding whether to sign it.

The importance of financial disclosure

Accurate financial information is an important part of preparing and advising on a BFA. A solicitor will usually need to understand what their client owns, what they owe and the nature of any significant financial interests or resources. Depending on the matter, this may include real estate, mortgages, bank accounts, shares, companies, trusts, business interests and other investments.

Where the agreement is intended to deal with significant assets, proper disclosure allows the parties and their solicitors to understand the financial circumstances in which the agreement is being made.

A party should not assume that withholding information about a significant asset will somehow strengthen their position. A failure to disclose relevant financial information can create serious problems and may become important if the agreement is later challenged.

When should a BFA be prepared?

If you are considering a BFA before getting married, it is sensible to deal with it well before the wedding.

Preparing an agreement shortly before a wedding can place unnecessary pressure on both parties and their solicitors. There needs to be enough time for the proposed agreement to be prepared, reviewed and, if necessary, negotiated.

The other party should also have a genuine opportunity to choose their own solicitor, obtain independent advice, ask questions and consider whether they are comfortable signing the agreement.

Starting the process early is generally preferable to attempting to finalise an important legal agreement in the days immediately before a wedding.

What if you are already married or in a de facto relationship?

A BFA is not only available before marriage. Financial agreements can be made during a marriage and, subject to the requirements of the Family Law Act, in relation to de facto relationships. Agreements can also be made after a marriage or de facto relationship has ended.

The appropriate form of agreement will depend on the circumstances.

If you are already separated and are seeking to finalise a property settlement, it is also important to obtain advice about whether a financial agreement is the appropriate option or whether your matter would be better dealt with by consent orders.

BFA prepared by your partner’s solicitor?

If your partner has already arranged for a solicitor to prepare a Binding Financial Agreement and you have been told that you need independent legal advice, you should obtain advice from your own family lawyer before signing anything.

Your lawyer should explain what the agreement means for you, how it affects your rights and the advantages and disadvantages of entering into it.

You are not required to use a solicitor selected by your partner or your partner’s solicitor. Independent advice means that the solicitor advising you acts for you and considers the agreement from your perspective.

Binding Financial Agreement Lawyers in Sydney

Binding Financial Agreements can be useful documents, but they need to be approached carefully. An agreement that may affect a person’s home, business, investments or other significant assets deserves proper consideration and legal advice.

MS Lawyers Sydney assists clients with the preparation and review of Binding Financial Agreements, as well as providing independent legal advice where an agreement has been prepared by another solicitor.

We assist clients in Liverpool, South West Sydney and throughout Sydney with family law matters, including Binding Financial Agreements, property settlements and consent orders.

If you are considering entering into a BFA, or you have received an agreement and have been asked to obtain independent legal advice, contact MS Lawyers Sydney to arrange a consultation.

This article contains general information only and is not legal advice. The law applying to a Binding Financial Agreement will depend on the circumstances of the parties and the particular agreement. You should obtain independent legal advice about your circumstances before entering into a financial agreement.