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BINDING FINANCIAL AGREEMENT PROS AND CONS

A binding financial agreement could be beneficial to partners with many solely owned assets.

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BERIVAN DUBIER
Last Updated Jun 8, 2021
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A binding financial agreement is similar to a prenuptial agreement. It is a contract between a married or de facto couple that sets out how their finances will be separated if their relationship ends.

The Family Law Act 1975 (Cth) contains a provision which facilitates this agreement.

This financial agreement can be made before, during and after the marriage or de facto relationship. But for it to be legally binding, both parties must sign it and have acquired legal advice prior to doing so. The legal advisor should inform parties of the advantages and disadvantages of such an agreement and sign a certificate which states that advice was provided to the parties.

The agreement can cover the division of property and finances, financial support, maintenance of one party after the breakdown of the relationship, and any incidental issues.

The most common reason to enter such a financial agreement is to protect assets an individual owned before getting into the relationship. This allows a distinction between personal and jointly owned assets. Such an agreement also allows parties to protect future income that they may receive through inheritances or investments.

Any allocation of debts such as loans or mortgages can also be made under this agreement, preventing shared liability for a personally owned asset. A comprehensive agreement will reduce costly court proceedings by minimising conflict if the relationship fails.

It may be difficult to discuss such an agreement, especially at the start of a marital or de facto relationship but it is ideal for partners who prefer to keep ownership and responsibilities of their assets separated.

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Before entering into a Binding Financial Agreement, ensure both parties fully understand its legal and financial implications. Obtain independent legal advice to confirm the agreement is appropriate for your circumstances. Reviewing the agreement after significant life changes can also be beneficial.

BERIVAN DUBIER

DIRECTOR

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SEAN DWYER

DIRECTOR
CPA and financial adviser for over 25 years. Loves to help businesses grow. Dad, jogger, cyclist, windsurfer and bad skier.

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FAQ

What is a binding financial agreement?

A financial agreement, often called a binding financial agreement (BFA), is a contract made under the Family Law Act by a married or de facto couple about financial matters. Depending on its terms, it can set out what happens to specified assets, liabilities, superannuation or maintenance if the relationship ends. Its legal effect depends on meeting the statutory requirements.

When can a couple make a financial agreement?
Married couples can make one before marriage, during marriage or after divorce. De facto couples can make one before, during or after their relationship. The appropriate legal provisions and wording differ, so a family lawyer should prepare the agreement for the couple’s relationship status and intended timing.
Can an agreement protect a business, inheritance or assets I owned before the relationship?

It can record how the parties intend those assets and any future growth or income to be treated. This may give both people more certainty and reduce later disputes, particularly where a business, trust or inheritance is involved. It does not guarantee that an asset will be immune from every future claim; clear drafting, accurate financial information and valid execution matter.

Do both people need their own lawyers?
Yes. Before entering a financial agreement, each party must receive independent legal advice from an Australian legal practitioner about the required matters. Both parties must sign, and the other technical requirements for a binding agreement must be met. An accountant can help assemble figures and explain tax or business implications, but cannot replace either party’s independent family law advice.
Can a financial agreement allocate debts or divide superannuation?
It may address liabilities between the parties and include arrangements for superannuation, subject to the applicable legal requirements. Allocating a joint loan between partners does not, by itself, release either borrower from obligations owed to a bank or other creditor. Superannuation splitting also requires careful drafting and implementation with the relevant fund. Check the practical and tax consequences before signing.
Can a court set aside a signed financial agreement?
Yes, in circumstances specified by the Family Law Act. Signing the document and receiving advice do not make it impossible to challenge. Issues such as fraud, including material non-disclosure, or certain significant changes in circumstances may be relevant, depending on the facts and statutory test. If an agreement may need to be challenged or updated, obtain family law advice promptly.
How is a financial agreement different from consent orders?

A financial agreement is a contract made outside court and requires independent legal advice for each party. Consent orders are terms the parties ask the court to make into orders; they can often be sought without a hearing. The court considers proposed consent orders, while it does not approve a financial agreement when the parties sign it. A lawyer can help compare the options for the particular settlement.

How can an accountant help when a couple is considering an agreement?
An accountant can prepare or explain financial statements, business and trust interests, tax records, valuations and likely tax consequences of proposed transfers. They can also help the family lawyers identify information that needs to be documented and model the cash-flow effect of an agreed division. The family lawyers remain responsible for the legal advice, drafting and enforceability of the agreement.

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