Binding Financial Agreements (BFA’s), as the name suggests, are financial agreements of a contractual nature which are legally binding on the parties to the agreement. These agreements are legally binding if drafted correctly according to the Family Law Act 1975 and generally will not be set aside by the Federal Circuit and Family Court of Australia (“the Court”) except in limited circumstances.
Binding Financial Agreements (BFA’s) can be entered into at the start of a relationship, during a relationship or after the relationship has broken down. They can apply to marriage and de factor relationships.
Lawyers play a crucial role in the drafting of BFA’s, as without legal expertise, these agreements simply cannot exist. BFA’s are complicated documents that require careful consideration to complete and do not simply indicate who gets what in the event of relationship breakdown.
What does a Binding Financial Agreement Contain?
BFA’s relate to financial matters and will have provisions relating to the division of assets and liabilities in the event of separation or, if the agreement is entered into after separation, how the assets and liabilities will be divided once the agreement comes into force.
Binding Financial Agreements (BFA’s) usually contain provisions relating to the following:
- financial settlement;
- financial arrangements for children; and
- spousal maintenance.
BFA’s will usually have provisions stipulating:
- who will retain certain assets and liabilities;
- where any inheritances will go;
- what to do in the event of a dispute relating to the agreement;
- what will happen to superannuation; and
- how children will be supported such as through a private child maintenance arrangement.
BFA’s may include matters such as whether certain property is owned jointly or separately and whether property owned separately is intended to be kept separate.
The BFA may include provisions relating to only certain property, which consequently would allow excluded property to come under the jurisdiction of the Federal Circuit and Family Court of Australia if a family law proceeding eventuated.
BFA’s commonly cover what would happen if the parties bought a property together and later separated and can detail how a sale and move out process would be affected.
BFA’s require an extraordinary amount of detail and precision as they cover small yet important details such as how payment will be made if one party is required to pay the other. This may include calculations related to the length of the relationship, may include percentages or dollar amounts, timeframes of payment and potentially include taxation consequences.
The BFA will also include a statement from each party stating that they had received independent legal advice before entering into the agreement. Such advice would need to include a conference with the parties’ lawyer, as well as a lengthy and detailed letter of advice explaining the benefits and disadvantages of entering into the proposed BFA.
When are Binding Financial Agreements Appropriate?
BFA’s can be appropriate at the commencement of a relationship, during a relationship, or at the end of one. They can apply to both marriages and de facto relationships.
These agreements are usually sought by couples at the start and during the relationship when there are or are likely to be significant assets to divide in the event of separation or after separation when parties want a formal agreement in place stipulating the division of assets.
They are especially useful where there is a large disparity in assets and/or age, or where there are step-children to think of, as having a binding financial agreement in place can make a new marriage far more acceptable to children from a prior marriage, who have the security of knowing “their” inheritance will not be at risk in the event that the subsequent relationship breaks down.
BFA’s do however require both parties to agree on the division of assets and liabilities.
The Process of Making a Binding Financial Agreement
- All parties to the agreement firstly need to seek separate independent legal advice. (They cannot receive advice from the same lawyer.)
- The agreement is then carefully drafted by lawyers, with both parties’ lawyers in correspondence with each other to stipulate terms of the BFA.
It is not as simple as talking through a document and signing it the same day.
Parties need to provide significant disclosure in relation to finances and property to obtain evidence in relation to the financial position of each party, similar to the level of disclosure that has to occur for long married couples who are separating. This would usually include the provision of evidence such as bank statements for every bank account held by both parties, tax returns, valuations of real estate, shares and superannuation. (It is not sufficient for each party to merely state their assets and liabilities, evidence must be provided and exchanged between lawyers.)
Once the assets and liabilities have been assessed, the document is then drafted.
The draft document will often go back and forth between lawyers to ensure the BFA accurately reflects the needs and wishes of both parties. Following this, both parties will need to be provided with thorough advice surrounding the advantages and disadvantages of entering into the agreement before it is finalised, and a certificate of advice must be executed by the lawyers acting for each party to the BFA.
Importance of Adhering to Strict Drafting Rules
As mentioned, there are strict drafting rules that apply to BFA’s. If these requirements are not adhered to, the agreement may not be legally binding and could be overturned by the Court.
Drafting rules for BFA’s include the following set out in s90G of the FLA:
- The agreement must be in writing and signed by both parties;
- Each party must have received independent legal advice;
- The legal practitioner must have provided their client with a signed statement confirming the provision of legal advice;
- Each legal practitioner’s statement of advice must be provided to the other party; and
- The agreement has not been set aside by the Court.
Lawyers involved have a duty to ensure they carefully explain in writing to their client the position they will be in with and without the BFA. Lawyers spend an extensive amount of time ensuring they get the agreement right and provide adequate advice.
What can Happen when a BFA is Drafted Poorly
The case of Thorne v Kennedy [2017] HCA 49 is an example of why BFA’s need to adhere to the required conditions and demonstrates what can go wrong in these cases.
In this case, the parties were husband and wife, and the agreement was made before their marriage. Mr Kennedy was a wealthy property developer and Ms Thorne had no assets. There was a substantial age difference between the parties, with Mr Kennedy being 31 years older than Ms Thorne. Ms Thorne was also from the Middle East and had a very limited support network in Australia.
Prior to their wedding, Mr Kennedy took Ms Thorne to a solicitor to obtain advice related to making a BFA. The solicitor advised Ms Thorne that the agreement was highly disadvantageous to her and recommended she not sign it. Mr Kennedy told Ms Thorne that if she didn’t sign the agreement then he would not marry her. By that stage, Ms Thorne’s family had arrived from overseas for her wedding, so Ms Thorne signed the agreement and married Mr Kennedy.
When the parties separated in 2011, Ms Thorne was given an extremely small payment as per the BFA. The matter proceeded to court and ultimately the High Court ruled that Mr Kennedy had taken advantage of his wife and that the agreement was the result of undue influence and unconscionable conduct, as Ms Thorne was heavily reliant on Mr Kennedy for financial support given her vulnerabilities. As a result, the agreement was not enforceable and was set aside.
The important takeaway is that BFA’s require an extraordinary amount of detail to protect both parties’ assets. This precision takes time and is essential to ensuring the validity of the document.
It is imperative to seek advice from a reputable solicitor who deals with BFA’s to ensure you receive comprehensive and thorough advice.
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Kate Scolyer – Solicitor– Matthies Lawyers
Should you wish to obtain advice regarding your family law matters, please contact Matthies Lawyers for an obligation-free consultation or call +61 3 8692 2517 today.
Disclaimer: This article contains general information only and is not intended to be a substitute for obtaining legal advice