You and your partner are about to move in together. Perhaps one of you has more assets or liabilities than the other. You both agree that you want to be able to walk away from your relationship (should such an end ever come) with what you came into it with. You write up an agreement to that effect, and you both sign it.

Or maybe you have become separated and are reasonably amicable or cordial enough to come to a decision regarding your financial affairs. Furthermore, you and your former partner also agree that you do not necessarily want to involve the Family Court and want to do this just between yourselves. You want to make it “legal”, so perhaps you write up an agreement, maybe even a Statutory Declaration, and you sign it before a Justice of Peace, or such other witness as agreed between the two of you.

Whilst the above may seem like reasonably practical and otherwise seemingly enforceable forms of “contracts” or “agreements” to take care of your finances during the relationship or at separation, they are, in fact, null and void and do not protect or enforce you or your partner’s financial interests as otherwise intended.

This is because such agreements must be entered into in accordance with the Family Law Act 1975 (Cth) or the Family Court Act 1997 (WA) for them to be legally binding. These agreements, known as Binding Financial Agreements (“BFAs”), must be drafted to ensure they meet all of the many legal requirements and are upheld if challenged.

What is a Binding Financial Agreement?

Whilst the term “Binding Financial Agreement” or BFAs is seemingly uncommon, there are many names for them, mostly popularized through American Television/Media which include:

  • Pre-nuptial agreements (“pre-nups”)
  • Post-nuptial agreements (“post-nups”)
  • Co-habitation agreements.

Parties can enter into BFAs before they move in together (cohabitation) or before they enter into a marriage. This is not to say one cannot be entered into during the marriage or during cohabitation either, as this is certainly possible too.

Such agreements set out and formalize how the parties’ financial interests will be dealt with in the event of their separation.

If parties do not have such an agreement in place at the time of separation, one can also be prepared and entered into to formalize the distribution of their property without the need to involve the Courts in any capacity.

For BFAs to be legally binding the following requirements as set out by legislation  must be met:

  1. The agreement must be signed by both parties.
  2. The parties must be clearly aware of each other’s true financial position; being their interests in any assets and liabilities.
  3. Each party must have had independent legal advice prior to signing the agreement to ensure that they are well aware of their legal rights and entitlements as well as the advantages and disadvantages of what they are agreeing to. This is not to say that they must pursue all their entitlements but that they must be aware so as to make informed decisions.
  4. The solicitors that provide the Independent Legal Advice must also provide signed statements confirming that they have done so.

Are BFA’s truly not worth the paper they are printed on?

There is a common misconception amongst the greater public that BFAs in Australia are “not worth the paper they are printed on” because their validity can sometimes be challenged or set aside.

This misconception is borne of the fact that they are only enforceable if drafted in adherence with legislation. And, in fact, some of this misconception may be a hangover from the time before BFA’s were legislated for between married or engaged couples in Western Australia in December 2000 and for de facto couples in Western Australia in 2002. BFAs can be set aside by the Family Court if the care taken in doing drafting them does not suffice or if they are improperly executed (signed).

Some of the common circumstances in which this occurs include but are not limited to the following:

  1. If there are substantial changes to either or both parties’ circumstances such that the agreement is no longer practical. Such changes are assessed on a case-by-case basis but may include things unforeseen when the agreement was prepared such as the birth of children etc. that would result in hardship to the child or their primary carer.
  2. If a party to the agreement was under duress or immense pressure to sign (e.g. their partner might cancel their wedding if they don’t sign days before, their partner might cancel a visa application if they do not sign etc.).
  3. The agreement was entered into with the deceptive intention to cancel out or supersede the financial interest of a creditor.
  4. There was inadequate disclosure of the parties’ true financial position at the time the agreement was entered into. This is because a good BFA is truly the result of the parties making a well-informed choice regarding their future.
  5. If there are changes in the parties’ circumstances that would deem the agreement no longer practicable.

Whilst it is all good and well to believe in “happily ever after”, the truth of the matter is, that even the best of relationships can sometimes break down, with divorce rates for first marriages in Australia at about 1/3 of marriages with second or subsequent marriages at almost 50% and de facto relationships believed to be much higher.

When this occurs, the dynamics that ensue can prompt lengthy and extremely expensive court proceedings which only add and heighten the emotional and financial stress borne of the separation.

When compared to the above, Binding Financial Agreements, when properly prepared and executed, are often a far more cost-effective way to:

  • Protect the assets you have worked so hard to earn.
  • Protect yourself from liabilities that are otherwise not of your creation.
  • Decide for yourselves the manner in which each of your financial interests in joint assets and liabilities will be preserved or distributed in the event of separation.
  • Minimize the potential legal costs and financial uncertainty from separation.

It is, therefore, abundantly clear that notwithstanding the seemingly expensive cost of a BFA, the benefit of having one far exceeds the potential financial and emotional costs of Family Court proceedings at the conclusion of a relationship.

We like to think of it as having “insurance” for your financial security for the future – and if you look at the divorce and separation rates, it is certainly something most people would choose to insure against.

At Lynn and Brown Lawyers, we are well experienced in advising on all aspects of BFA’s, the preparation and/or termination of BFA’s as well as the variation of any pre-existent BFA’s.

As such, should you or someone you know need professional advice regarding the protection of their assets, before, during or after separation, please do not hesitate to contact our team at Lynn and Brown Lawyers.

About the Authors: This article has been authored by Caroline and Jacqui. Caroline Maradzika is a family law solicitor specialising in parenting and property matters. Having been admitted in 2017, she also practices in the Magistrate’s Court particularly in Family Violence Restraining Order matters. Jacqui is a Perth lawyer and director at Lynn & Brown Lawyers. Jacqui has over 20 years’ experience in legal practice and practices in family law, mediation and estate planning. Jacqui is also a Nationally Accredited Mediator and a Notary Public.

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