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Binding Financial Agreements
A Binding Financial Agreement (commonly referred to as a BFA) is a useful tool that allows couples, whether married or de facto, to formally record how to divide their assets, financial resources and liabilities in the event their relationship breaks down.
A BFA can be done prior to the commencement of a relationship, during a relationship, or after a relationship by agreement of the parties.
The effect of a BFA is to make a binding contract that effectively displaces or overrules the Family Court process (if the BFA has been validly made).
People commonly consider entering into Binding Financial Agreements before or during a relationship to achieve the following;
- Protecting assets which you have worked hard to accrue prior to entering into the relationship;
- Protecting your future income in the event the relationship breaks down;
- Taking proactive steps so that both parties to the relationship can implement their own ‘rules’ as to how their assets, liabilities and financial resources which they bring into the relationship are dealt with rather than subjecting themselves to a decision imposed upon them by the Court;
- To protect or quarantine specific assets, such as an inheritance obtained prior to entering into the relationship.
Binding Financial Agreements can be used to formally divide assets after the end of a relationship, and are commonly used to provide, or to prohibit, spousal maintenance being payable by the parties.
Binding Financial Agreements can be entered into by both heterosexual and homosexual couples, in addition to both de facto and married couples.
It is important for both yourself and your partner to seek expert advice when considering entering into a Binding Financial Agreement to ensure that the document which you are paying for is ultimately enforceable at law pursuant to the Family Law Act.
If either party to a Binding Financial Agreement does not obtain appropriate advice prior to the execution of the document, the Court will make a finding that the Binding Financial Agreement will be found to be not a binding document. This could then result in all assets (including those brought into the relationship) being considered to be assets of the relationship and available to be taken into consideration in a property settlement.
The consideration and advice involved with a BFA is a big deal, as the Court has effectively allowed lawyers to write a document that avoids the Family Law Act provisions for property settlement or spousal maintenance, but only if the document is drafted and executed correctly and the parties have been appropriately advised.
Should either party to the Binding Financial Agreement attempt to challenge the validity of the document, the starting point of the Court would usually be to review the advices provided to both parties prior to entering into the document and for this reason is crucial that expert independent advice is given to both parties to the document.