A Binding Financial Agreement (BFA) is a legally enforceable agreement made between parties to a relationship, such as de facto partners or married couples, under the Family Law Act 1975 (Cth). Noting that in Western Australia BFAs between married parties or between parties contemplating marriage are made pursuant to the Family Law Act 1975 (Cth), and BFAs between de facto couples are made pursuant to the Family Court Act 1997 (WA).
These agreements can be entered into before, during, or after a relationship and are designed to outline how property, financial resources, and spousal maintenance will be divided in the event of a relationship breakdown. BFAs provide a degree of certainty and can help avoid the need for court proceedings, which can be expensive, time-consuming and emotionally draining.
To be legally binding, a BFA must meet specific requirements under section 90G of the Family Law Act 1975 (Cth), and the corresponding State legislation. These include that the agreement is signed by all parties, each party receives independent legal advice, and the agreement has not been terminated or set aside by a court. In some cases, the court may declare an agreement binding even if certain formalities are not met, provided it would be unjust and inequitable for the agreement not to be binding.
In addition to the abovementioned requirements there is another, often overlooked requirement for a BFA to be binding, discussed here.
Interaction with Income-Tested Pensions or Benefits
Importantly, BFAs cannot exclude or limit the court’s power to make maintenance orders if a party is unable to support themselves without an income-tested pension, allowance, or benefit. This is outlined in section 90F of the Family Law Act 1975 (Cth) and similar provisions in the Family Court Act 1997 (WA). The court retains the discretion to make maintenance orders in such circumstances, ensuring that individuals who rely on income-tested benefits are not left without adequate support.
The term “income-tested pension, allowance or benefit” is defined in the Family Law Act 1975 (Cth) and is adopted in related legislation. These pensions or benefits are typically government-provided financial support, eligibility for which is determined by an individual’s income level, they include the Age Pension, the Parenting Payment and the Disability Support Pension.
Additionally, when determining maintenance obligations, courts are required to disregard any entitlement a party has to an income-tested pension, allowance, or benefit. This ensures that maintenance considerations focus on the actual financial needs and capacities of the parties, rather than being influenced by government support payments.
Conclusion
Binding Financial Agreements are a valuable tool for individuals seeking to manage their financial arrangements in the event of a relationship breakdown. However, their interaction with income-tested pensions or benefits is carefully regulated to ensure that individuals who rely on such support are not left financially vulnerable.
When drafting a BFA it is important to consider if one of the parties may be in a position in which they may need to rely on an income-tested pension or benefit – there are some ways to ensure that a person may not be eligible for a pension, which include if that person’s assets are enough to prevent their eligibility for a pension.
It is essential to seek independent legal advice when entering into a BFA to ensure compliance with legal requirements and to understand the implications for income-tested pensions or benefits.
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About the Author: This article has been authored by Kumbirai Kavumbura and Jacqueline Brown
