Love is a bed of roses until the tough times arrive. And at that point, if things break down and you have nothing in place to protect your assets, it’s possible that you might lose more than your relationship. This is where a binding financial agreement (BFA) can help.
The purpose of a binding financial agreement (BFA) – a written agreement or contract between two people in a relationship. People tend to enter into a BFA to protect their property, assets, and superannuation in the event their de facto relationship or marriage breaks down.
Financial agreements were included into the Family Law Act 1975 (Cth) in 2000.
About Binding Financial Agreements
BFAs can be put in place before, during, and after a relationship.
It is worthwhile noting that a prenuptial agreement (an agreement entered into before the commencement of a relationship) poses significantly more risk than an agreement entered into after the relationship. This is due to a principle known as erosion. The longer the relationship, the weaker a financial agreement becomes. This is because over time, it’s likely the couple has amalgamated their assets during their relationship in such a way that it would be unfair to enforce the provision in a pre-existing BFA.
There are four key advantages to a BFA.
- Avoids litigation
- Efficiency and flexibility
- No requirement of fairness, and
Let’s go through these in detail.
The drafting of a BFA enables the couple to avoid going through arduous, lengthy, and costly court proceedings. The execution of a BFA does not require judicial approval, court proceedings, or attendance at court.
Efficiency And Flexibility
BFAs are much simpler, easier, and less costly than consent orders, which are written agreements which have to be approved by the court. Furthermore, the filing fee is greater than the filing of a BFA.
No Fairness Requirement
Provisions of a BFA do not have to adhere to the requirements of ‘just and equitable’ or ‘proper or reasonable’, provided that the requirements of part VIIIA of the Family Law Act is complied with. Therefore, a BFA is binding irrespective of principles of fairness. This advantage enables a party to make specific orders under the agreement subject to their wishes.
The public is not privy to a party’s financial position. The only publicity of a party’s financial position would be between the parties and their lawyers.
- Broader grounds for setting aside a BFA
- No official record.
There are no requirements for the agreement to be approved before a court before they are implemented. One person may continue to commence proceedings in court for property settlement proceedings. They can set aside a BFA under section 90K of the Family Law Act. However, that does not necessarily mean that a BFA would not carry considerable weight in protecting your assets.
The grounds for setting aside a BFA are somewhat broader than the grounds for setting aside financial orders delivered by a court.
No Official Record
Unlike consent orders (issued by a court), there is no register that keeps a record of the financial agreement. Once a financial agreement is executed, the parties will retain a copy of their agreement – however, the issue here is that documents may be lost or misplaced by the couple.
When contemplating the execution of a BFA, it’s important to consider both the advantages and disadvantages to determine if it’s the right approach for you.
If you’re looking to protect your property and assets in an amicable, speedy, and cost-effective manner, then a BFA would be perfect for you. However, if you are looking for a more formal means of securing your assets, then you might want to go down the avenue of consent orders.
If the financial agreement is not ultimately held to be binding, it can be useful as evidence to establish the parties’ understanding of the assets they each had at the time the agreement was made. It is also useful to set out each party’s intentions regarding those assets, which can help narrow issues in dispute in any future family law proceedings. Contact us for further information.