BFA’s DURING A DE FACTO RELATIONSHIP OR MARRIAGE
Under the Family Law Act, Binding Financial Agreements (BFA’s) can be made:
- Prior to a marriage or de facto relationship commencing;
- During a marriage or de facto relationship; or
- After separation.
This article is about BFA’s made during a marriage or de facto relationship, prior to a separation occurring. These agreements are in many ways similar to agreements made prior to a marriage or de facto relationship, which are often colloquially referred to as “pre nups”. For information about “pre-nup” style agreements, click here.
Do you need a BFA?
Although parties may have married or commenced a de facto relationship without making a BFA, circumstances can arise during the relationship, which make one or both consider such an agreement.
To make an informed decision about whether you need a BFA, you should obtain legal advice from a family law expert. An experienced family lawyer can explain to you the pros and cons of making a BFA and help you decide whether the time and cost involved is warranted.
The first thing you need to know is how your property will be divided following a separation under the Family Law Act (FLA). For information about the process involved see our page about determining property entitlements. Once you understand the law, you can decide whether you would be content for your property to be divided under the FLA. And, if not, how you would prefer to divide your property in the event of a separation.
The most common scenarios when it might be appropriate to make a BFA during a marriage or de facto relationship are where:
- One party intends to become involved in a family company, trust or business with his/her parents, siblings or other family members;
- A party proposes to purchase an asset with a person other than their spouse;
- A party receives a substantial gift or inheritance;
- A party is injured and receives a compensation payment to provide for him/herself in the future;
- One party has an addiction, which threatens the parties’ financial welfare and the other party seeks to protect his/her interest in their property;
- The parties are separated but considering a reconciliation and wish to make an agreement about their finances before doing so.
How does a BFA work?
If a financial agreement complies with the legal requirements (see below), it is binding on both parties and enforceable by the courts. This means that if a separation occurs, the terms of the parties property will be divided according to the BFA instead of under the FLA. A BFA can also include provisions which set out how the parties will conduct their financial affairs during their relationship.
What are the legal requirements for a BFA?
For a BFA to be legally binding, both parties must:
- Before signing the agreement, receive legal advice from separate solicitors about the advantages and disadvantages of making the agreement and the effect of the agreement on their rights;
- Receive a signed statement from their own lawyer confirming that the above advice has been given; and
- Receive a copy of a signed statement from the other party’s lawyer confirming that the other party has received the above advice.
Provided the above requirements are met, either party can seek a court declaration that the agreement is binding and enforce the terms of the agreement. Before the agreement can be enforced, however, one of the parties must sign a separation declaration. A separation declaration must state that the parties have separated and are living separately and apart and that the person making the declaration believes there is no reasonable likelihood of a reconciliation occurring.
Can a BFA be set aside?
The FLA sets out (at section 90K) when a court may set aside a BFA. Most of the grounds relate to the behaviour of the parties at the time the agreement was made. The aim of the law is to prevent a party making an agreement where the other party has committed fraud, applied unreasonable pressure or engaged in some other unconscionable conduct. The FLA also seeks to prevent parties making BFA’s to defeat claims by creditors or former spouses. There is also a ground which allows the court to set aside a BFA if, since the agreement was made, there has been a significant change in circumstances relating to the care, welfare and development of a child of the relationship, which would result in the child or his/her carer parent suffering hardship if the agreement were not set aside.
If a court is satisfied that one or more of the grounds in section 90K are proven, the court may make an order setting aside the agreement. The parties’ property will then be divided under the provisions of the FLA.
The law in relation to BFA’s is complex and such agreements, especially agreements which are to be made during a marriage or de facto relationship need to be carefully drafted. You should engage an experienced family law accredited specialist to advise you before deciding whether to make such an agreement and to ensure that the agreement will be binding.