SETTLEMENT AGREEMENTS (BFA’s)
Under the Family Law Act (“FLA”), binding financial agreements (“BFA’s”) can be made:
- Prior to a marriage or de facto relationship commencing (“pre-nups”);
- During a marriage or de facto relationship; or
- After separation.
This article is about BFA’s made after separation. These agreements, sometimes called “settlement agreements” can be used instead of consent orders to document a property settlement or an agreement about spouse maintenance.
Why use a BFA?
Some lawyers believe that documenting a property settlement with a BFA is quicker and cheaper than using consent orders. However, in our experience this is untrue. For a financial agreement to be binding both parties must be legally represented and must receive precise legal advice as specified in the Family Law Act. Lawyers who fail to give proper legal advice, as required under the law, can be sued for negligence. Therefore, prudent and experienced family lawyers ensure that all advice provided is confirmed in writing and that their advice covers all possible consequences of making the agreement with full explanation of the applicable law. So, if a settlement agreement is done properly, more work is required and, therefore, greater costs are incurred. Also, a settlement agreement usually needs to cover a wider range of eventualities than consent orders, so is more complex to draft.
If a lawyer offers to draft you a “simple” 1 or 2 page agreement or to sign the lawyer’s certificate without giving you full and detailed advice, it is highly likely the settlement agreement will not be binding and could well be worthless. The old saying that “you get what you pay for” is relevant in this situation.
Accordingly, where the parties have negotiated a just and equitable property settlement (for information about how a just and equitable outcome is determined click here) and both parties have provided full and frank disclosure, we recommend using consent orders instead of a settlement BFA. Because consent orders must be approved by the Family Court to be binding, there is less prospect of either party later having the settlement set aside than with a BFA, which is not seen by the court until one of the parties challenges it.
However, there are certain situations in which one or both parties might prefer to document their property settlement in a BFA, such as:
- Where the settlement agreement is not just and equitable to both parties, and therefore would not be approved by the Family Court (usually the party who is receiving a “better deal” will want the BFA);
- Where the parties do not wish to provide full and frank disclosure. That is, do not wish to disclose their current financial circumstances to each other or a court; or
- Where the parties wish to ensure complete privacy regarding the terms of their settlement.
There might also be a benefit in documenting an agreement for spouse maintenance in a BFA rather than consent orders. This is for a couple of reasons. If spouse maintenance is provided for in a consent order, that order can be varied (either upwards or downwards) until it is discharged. If a BFA is used, however, the only way either party can have the amount of maintenance increased or decreased is with the consent of the other party, or by having the BFA set aside by a court.
It is also common for parties to use a settlement BFA to try to “shut out” the possibility of a future claim for spouse maintenance. They do this by including in the agreement provisions for each party to pay the other a minimal amount such as $1.00 for spouse maintenance or provisions giving up the right to claim it. However, to date there have been no legal decisions confirming that either of these strategies are effective. This means that if such an agreement were challenged in court, the court might decide that the spouse maintenance provisions are unenforceable.
What are the legal requirements for a settlement agreement?
For a settlement BFA to be legally binding, both parties must:
- Before signing the agreement, receive legal advice from separate lawyers 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 these requirements are met, either party can seek a court declaration that the agreement is binding and enforce the terms of the agreement.
It should here be noted that there is no requirement for both parties to be independently represented by separate lawyers if a property settlement is documented in consent orders.
Can a settlement agreement 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. This is to try to prevent a party making a settlement agreement in circumstances where the other party has committed fraud, applied undue pressure or behaved unconscionably. The FLA also seeks to prevent parties making a settlement agreement to defeat claims by creditors or former spouses. There is also one ground which allows the court to set aside an agreement 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. And, the child or his/her carer parent would suffer 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 can set aside the BFA. If a settlement agreement is set aside, the parties must then negotiate, or the court must order, a completely fresh property division. When doing so, the parties or court must consider the property which exists at the time the matter is being reconsidered and apply the provisions of the FLA.
The law in relation to BFA’s is complex, so these settlement agreements need to be carefully drafted and finalised. You should engage an experienced family law accredited specialist to advise you before deciding whether to make a settlement agreement and to ensure that it will be valid and binding on both parties.