Love, Law & Assets: A Guide to Binding Financial Agreements

Whether you're moving in together, planning a wedding, or going through a separation, protecting your financial future can feel overwhelming. However, it doesn’t have to be. In this article, we answer some of the most common and commonly misunderstood questions about Binding Financial Agreements and explain why they may be more important than you think.

Q: What is the difference between a Binding Financial Agreement and a Prenup?

A: A Prenuptial agreement, or a “prenup”, is a financial agreement made between two people before they marry. A Binding Financial Agreement (BFA), as they’re known in Australia, can relate to both marriages or de facto relationships, and can be made before, during, or after the relationship.

There are special requirements for a BFA to be binding in Australia. These include, amongst other things, receiving independent legal advice before signing the agreement.

Q: What is the difference between a BFA and Consent Orders?

A: BFAs and Consent Orders are both legally enforceable ways to record a property settlement reached between two parties. They provide certainty moving forward. There are, however, a number of key differences between the two, including:

Timing of the agreement:

• Consent Orders can only be applied after a relationship has broken down for good.

• Binding Financial Agreements, on the other hand, can be used in two ways: to formalise a property settlement after a breakup, or to set out what will happen if the relationship ends in the future.

By entering into a Binding Financial Agreement early in the relationship, both parties can feel confident they’re starting the relationship for the right reasons. It also helps protect any assets they owned before the relationship began.

Making an agreement while things are going well can also help avoid a stressful and emotional property dispute if the relationship ends later on.

The requirements:

• Consent Orders:
  Unlike with Binding Financial Agreements, Consent Orders do not require both parties to get legal advice. This is because the Court will only make Orders that it considers fair and reasonable.

• Binding Financial Agreements:
  Agreements made through a BFA do not need to be fair or reasonable in the same way. Because there is no review by the Court, the Family Law Act requires both parties to receive independent legal advice beforehand. This ensures they understand the pros and cons of entering into the agreement.

• Flexibility and the “clean break” principle:
  When making property settlement Orders, the Court follows the principle that couples should have a “clean break” from each other financially. As a result, the Court can be reluctant to approve arrangements that keep the parties financially tied for a long time. This can be the case even if the arrangement would benefit both people (i.e. delaying the sale of a property until a development is completed). BFAs offer a bit more flexibility. They can include longer-term financial agreements, while still ensuring that the financial relationship ends in time.

Q: What do I have to disclose in a BFA?

A: Whether a party chooses to record their agreement through a BFA or Court Orders, the obligations to provide full and frank disclosure remains the same.

When deciding what information needs to be disclosed, it’s important to err on the side of caution. One of the most common reasons a BFA is set aside by the Court is due to a “material lack of disclosure”.

What is considered “material” can vary from case to case, so it’s important to seek legal advice about what must be disclosed when negotiating a property settlement.

Q: What is the best way to approach the topic of getting a BFA with my partner?

A: Unfortunately, there’s no one-size-fits-all approach to starting a conversation with your partner about entering into a BFA.

You know your partner better than your lawyer ever will. While your lawyers can provide information and suggestions on how to approach the topic, you are ultimately the best judge of how and when to raise it.

Some key tips to keep in mind:

• Have the conversation early

  No one wants to have a difficult conversation unnecessarily but bringing up a BFA just weeks before your wedding can put a lot of pressure on the relationship. It may also raise concerns that the agreement was entered into under duress (i.e. if one party felt the wedding would be called off if they didn’t sign). In these situations, it may be better to enter into an agreement during the marriage rather than immediately before it.

  Having the conversation early in a relationship can help to build a strong foundation and reduce uncertainty around major milestones, like moving in together.

• Be open and honest about why you want a BFA

  No one enters into a relationship planning to break up, but sometimes these things happen.

  It is not unusual for people who have children from previous relationships to want to ensure their children are looked after. Similarly, those who come together later in life may want to protect the assets they’ve accumulated over time.

  Being honest and open about your reasons for wanting a BFA can help your partner understand your perspective. It’s not about whether you trust them but about having peace of mind if something were to happen.

If you are considering entering into a Binding Financial Agreement, or want to know more about the process, contact us on (03) 9629 7411 to arrange a conference with one of our experienced Family Lawyers.