Binding Financial Agreements (BFAs), often referred to as “prenups”, have become increasingly more commonplace in Australia. These agreements, which are recognised under the Family Law Act 1975 (Cth) (and the Family Court Act 1997 (WA) in Western Australia), provide couples with a legal framework to protect assets in the event of separation or divorce. This article looks at the nature, legal validity, and enforceability of BFAs in Australia.
Benefits of a BFA
A BFA is a legally binding contract between a couple. A BFA may be entered into at the start of a relationship, during a relationship, or even after the relationship has come to an end. These agreements are usually designed to set out the division of assets, liabilities, and resources in the event of separation or divorce, but they are also binding upon the death of a spouse, as the agreement may be enforced on a deceased estate.
Many couples find security in planning for their financial future, even to the extent of accounting for the end of a relationship. Traditionally, it has been more customary for a couple to have a BFA if one spouse has a much greater net worth than the other, to safeguard that substantial wealth. However, with the increase in blended families and later marriages, it is becoming more common for people to seek a BFA simply to safeguard what might be seen as “average” assets. For instance, a BFA can protect a family business or farm that might otherwise have to be liquidated in the case of a relationship breakdown. Additionally, prenuptial agreements afford greater privacy than the alternative of a public court battle.
Legal validity
For a BFA to be valid and enforceable, it must adhere to strict legal requirements. First, it must be in writing and signed by both parties. Crucially, both parties must understand the implications of the agreement. To ensure that the parties genuinely have this level of understanding, there must be full and frank disclosure of both parties’ finances, including income, assets and liabilities before entering into a BFA. Both parties also must receive independent legal advice from a qualified lawyer before signing. The legal advisor must sign a statement confirming that they provided this independent legal advice. Crucially, each party must enter into the agreement voluntarily and without coercion.
Content and Scope
The content and scope of a BFA varies widely depending on the preferences and specific circumstances of the couple. Common provisions found in BFAs include:
- Asset Division
A BFA will commonly set out how assets (such as real estate, inheritances, and investments) will be divided in the event of separation or divorce. This might include specifications as to which assets are excluded from the joint property pool, often because these assets were acquired prior to the commencement of the relationship.
- Debt Allocation
A BFA will sometimes set out how debts (such as loans, credit cards, and mortgages) will be assigned upon the dissolution of marriage. This is more common when the debts are pre-existing at the time of the relationship when it is important to protect one spouse from debts incurred by the other prior to the relationship.
- Spousal Maintenance
A BFA will often set out a specific agreement about provisions for spousal maintenance. In that case, the BFA will specify which party will be responsible for providing financial support to the other following a separation and may set a fixed amount for the rate of maintenance.
- Financial Responsibilities
More rarely, a BFA will clarify the financial responsibilities of each party during the relationship, such as daily expenses, savings, and investments. This is more likely when the financial circumstances of the couple are complex, or there are minor children from another relationship that require support.
- Children
BFAs cannot contract issues relating to parental responsibility for children but can make provision for financial support for the education and upbringing of offspring of the relationship. A BFA can also specify provision for child support for already-born children who are named in the agreement. Even then, the court can overrule any child support arrangement in a BFA if it is contrary to the best interest of the child.
Enforceability
Many people enter into a BFA with the sanguine belief that it is an enduring and fully-binding agreement. However, it is important to know that a BFA is still subject to scrutiny by the Federal Circuit and Family Court (or Family Court of Western Australia) in any property settlement, spousal maintenance, or child support case. In fact, the court can overturn any term of a BFA. For instance, the court may find that there has been a significant change to the couple’s financial circumstances that was not foreseen in the agreement (such as the birth of a child). The court can also overrule a BFA if it was not drawn up according to legal requirements, or if there was fraud or unconscionable conduct in its creation. In these cases, the court can terminate the agreement and even award damages to the wronged party.
Binding Financial Agreements offer couples a valuable tool to provide certainty and peace of mind for both parties about their financial futures. Before entering into a prenuptial agreement, both parties must secure independent legal advice. Please contact or phone Taylor Rose on 1800 491 469 for assistance drawing up a prenuptial agreement or any family law advice.
