What is a binding financial agreement?
When the parties to a relationship separate, the Family Court has the power to make orders about how property of the relationship will be split.
That split will normally be done on the basis of:
- what the parties had when they entered the relationship;
- what has happened during the relationship;
- the parties’ needs as they exit the relationship;
- most importantly, what the court then considers to be fair and reasonable in the circumstances [i.e. what is just and equitable under the Family Law Act 1975 (Cth) (Act)].
Getting Family Court orders can be a costly and time-consuming process, particularly if there is an appeal from an earlier court decision. It can cost 10’s and 100’s of thousands of dollars, and a BFA is the way to avoid this cost.
A BFA is a binding contract that will override the Family Court’s power to make an order about property (including spousal maintenance and superannuation) of the parties to a relationship if they separate.
In order to be binding, it must be made strictly in keeping with the legal requirements of the Act.
So, a BFA is a written agreement that:
- is a binding contract subject to the limited provisions of the Act that can allow the contract to be avoided;
- must comply with the Act (if it is to be binding and override the Court’s power to make orders);
- will normally set out what is to happen with the assets and liabilities of the parties to a relationship if they separate;can set out what is to happen with the assets and liabilities of entities controlled by the parties to the relationship if they separate;can also deal with “spousal” maintenance of the parties if they separate;
- can also deal with superannuation entitlements of the parties if they separate.
The historical reference to a BFA has been to a “pre-nuptial” agreement. This is because it is normally entered before parties enter a relationship.
However, a BFA can be entered:
- before;
- during; and
- after
a relationship.
If the BFA is entered in compliance with the Act:
- it will be binding on the parties; and
- only in limited circumstances will 1 of them be entitled to go to court to avoid the BFA (although, that does not mean that they will not try).
What can the BFA cover?
The BFA can cover:
- the property and financial resources of the parties to a relationship, whether it is owned by them personally or not;
- spousal maintenance of the parties and whether it is payable or not (subject to the courts power to override the maintenance provisions of the agreement if when the agreement comes into effect a party to the marriage / relationship is unable to support themselves without an income tested pension, allowance or benefit);
- rights to superannuation of the parties;
- anything about the parties’ relationship, so long as it is incidental or ancillary to the relationship.
The BFA can be:
- completely unlimited about the assets and financial resources it deals with; or
- limited to those assets and financial resources that the parties choose.
What might a BFA look like?
In some ways, the flexibility of the structure of a BFA is only limited by the imagination so long as it relates to those things set out above.
For example, in estate planning work for couples entering a relationship later in life and without children or for older couples entering a relationship later in life where they each have children from an earlier relationship, the BFA can say:
- what is mine now, remains mine (for you);
- what is yours now, remains yours (for your spouse);
- what we acquire together will be ours jointly, to be divided as a court may decide or in a defined way set out in the BFA;superannuation interests will remain the entitlement of the parties to the relationship or that they will be split in an agreed way (which is called a superannuation agreement);
- that certain insurance proceeds will be the benefit of the agreed party but which, if possible, may require a restructure of the policy to achieve the required outcome, but that may involve unwanted income tax if not carefully managed (although, for older couples, there is less likely to be insurance in place).
For example, in succession planning work for families where younger couples in the family are to receive an inheritance (either 1 or both of them) the BFA can say:
- what we acquire together including all of our superannuation interests will be ours jointly, to be divided as a court may decide;
- inheritances from parents or other people will remain our separate property.
Does the BFA only apply to Australian assets?
A BFA can only apply to Australian assets, as the Family Court only has jurisdiction over Australian assets.
If there are non-Australian assets, separate arrangements will need to be made about them if you want to deal with them in a similar way as you want to deal with the assets under the BFA.
While Long Saad Woodbridge Lawyers may be able to assist you source advice to put those separate arrangements in place, it will not be able to advise you about that and how to do it.
We will assume that you do not have non-Australian assets unless you raise it with us and specifically ask us to assist you manage separate arrangements for them.
Does the BFA need to be fair?
Subject to compliance with the rules by which a BFA must be entered into:
- the BFA does not need to be fair and reasonable; and
[Other than for those parts that relate to the giving of a section 95 release under the Succession Act (NSW)]
- neither does it need to favour each party equally.
This is because:
- nothing in the law requires it to be fair and reasonable; and
- before the BFA is signed off, there is a process that must be gone through, which includes the getting of legal advice about what is the effect of the BFA on the parties’ rights and the advantages and disadvantages, at the time the BFA is signed, of making it.
While nothing in the Act requires a BFA to be fair and reasonable, the High Court in its decision in Thorne v Kennedy [2017] HCA 49 unanimously set aside the BFA on the grounds of unconscionable conduct. In this case, the terms and conditions of the BFA were very unfavourable to the wife. In its decision, the High Court did not agree that a bad bargain will always be upheld and in reaching its decision the High Court found that a bad bargain may contribute to a finding that the BFA be set aside on grounds in section 90K(1)(b) or (e).
Can a BFA cover a de facto relationship?
Legally married couples and couples in a de facto relationship (which includes those in same-sex relationships) may enter a BFA.
The Act applies to a BFA for legally married and de facto couples.
However, if the de facto partners later marry after entering the BFA, the marriage will revoke the BFA and a new BFA will need to be entered if the married couple want it to continue.
Setting aside a BFA – what are the safeguards to take against it?
These are things that may be relevant in a court’s decision to set aside a BFA:
- What were the emotional circumstances in which the BFA was entered, including were there any explicit or implicit threat to end the marriage or the relationship of it was not signed?
- Was the BFA signed well in advance of the marriage or cohabitation?Was entry of the BFA by a party secured by representation/s from the other party that were not true, particularly representations that were intended to influence the decision to marry or cohabit?Was a party to the agreement forced to enter it?Was each party to the BFA given the opportunity to negotiate it?Was the agreement entered only after full legal and financial advice?What was the advice that was received?Was their time for the advice to be fully considered and reflected on before signing the BFA?What was the relative financial position of the parties?
- Were the terms and conditions of the agreement reflective of what a court would have decided?
As a BFA can be a very effective estate planning and/or succession planning tool, providing certainty of outcome without costly court action, why not let Long Saad Woodbridge Lawyers show you how to put your BFA in place.
Disclaimer
The information in this article is general in nature and is not intended as legal advice. You should not do or fail to do anything in reliance on information in it. We do not accept any responsibility for any loss that you suffer if you do. You should seek professional advice before you do anything about the issues set out in this article.
