A Guide to Binding Financial Agreements: ‘Prenups’ in Australia
- August 1, 2023
- Posted by: admin
- Category: Family Law
At the start of a new relationship, it’s very difficult to think about what happens if the relationship doesn’t work out. The reality of the family law system in Australia is that when it comes to financial matters, from the moment a couple moves in together their finances start to be considered as one, which is one reason why people might consider entering into a Binding Financial Agreement (colloquially referred to as a prenup).
Regardless of how separate you keep your finances, or who brought what into the relationship, a property claim at the end of the relationship might still be a reality. This is where binding financial agreements come into play. In Australia, binding financial agreements are a legally recognized way for couples to safeguard their financial futures and agree on what will happen to their assets should their relationship come to an end. In this article, we’ll explore what binding financial agreements are, how they work, and the key aspects to consider if you’re contemplating one in Australia.
What is a Binding Financial Agreement (BFA)?
A binding financial agreement (also known as a ‘BFA’ or ‘prenup’ in Australia) is a legally binding document that outlines the financial arrangements between parties in a relationship. A BFA requires each party to the relationship to have separate legal representation to certify that each party has been given independent legal advice about the effect of the agreement and the advantages and disadvantages to them in accepting it.
Who Can Enter into a Binding Financial Agreement?
A BFA can be created before, during, or after a relationship and is designed to protect the assets, debts, and financial interests of both parties in the event of separation or divorce. To be eligible, you must fall under one of the following categories:
- People intending to move in together and start a de facto relationship;
- Engaged couples (this is where the term prenuptial agreement comes from in Australia);
- Married couples;
- De facto couples; and
- Couples who have separated.
Why Consider a BFA?
BFAs are a way to contract out of the family law system so that a Court will not be able to make decisions on matters that you have already agreed.
There are various reasons why individuals may choose to enter into a binding financial agreement, including:
- Protecting pre-existing assets: If one or both parties have significant assets or debts before entering the relationship, a BFA can help safeguard these from division in the event of a breakup.
- Clarity and certainty on financial matters: BFAs can provide clarity on financial matters, making it easier to manage expectations and reduce conflicts if the relationship ends.
- Protecting the vulnerable: Where people are considering having children together but one party holds a lot more assets, a BFA might be a way to reassure a party about what property they may receive if the relationship ends and they still have to support children.
- Business ownership: If one or both partners own a business, a BFA can help protect business interests.
- Estate planning: A BFA can be an essential tool for estate planning and ensuring that assets are distributed as per your wishes.
BFAs are particularly popular with couples entering second relationships where they have significant assets or where a party may have been given assets by parents or grandparents and wants to ensure they are protected.
What can a Binding Financial Agreement cover?
A BFA can cover current and future assets of a relationship. You can cover all of your property or just deal with current assets with all future assets to be left out of the Agreement. A BFA can cover property, spousal maintenance, and what happens to superannuation.
When entering into a BFA after a relationship, some parties choose to deal with their child support obligations at the same time by including a Limited or Binding Child Support Agreement within the same document. This allows them to register the agreement with the Child Support Agency.
Drafting & Enforcing a BFA
Creating a binding financial agreement in Australia involves several crucial steps:
- Seeking legal advice: Both parties must obtain independent legal advice from separate lawyers before entering into a BFA. This ensures that each party fully understands the agreement and its implications. If you are entering into the agreement before or during the relationship, it’s incredibly important to understand how future assets should be purchased after entering into the agreement in line with the terms of the BFA.
- Full financial disclosure: It’s essential for both parties to provide complete and accurate details of their financial situation, including assets, liabilities, income, and expenses.
- Agreement terms: The BFA should clearly outline the financial arrangements, including property division, spousal maintenance, and any other financial matters relevant to the relationship.
- Legal requirements: The agreement must meet specific legal requirements, such as being in writing, signed by both parties, and include a statement from each party’s lawyer confirming they provided legal advice and if signing after separation, a separation declaration must be signed to confirm the relationship has ended.
To ensure that a binding financial agreement is enforceable, it must meet strict legal requirements. Factors that can impact the enforceability of a BFA include compliance with legal formalities noted above and ensuring that there is no evidence of any party being coerced into signing the agreement.
Changing or Ending a BFA
BFAs can be changed or terminated by both parties’ mutual agreement or by a court order in specific circumstances. A Court can only make an order setting aside a BFA in limited circumstances such as where it was obtained by fraud (non-disclosure), procured by duress, entered into for the purpose of defrauding someone or defeating creditors, where the agreement is void, where the agreement has become impracticable or where there has been a material change in circumstances and a child to the relationship, or person having care of a child, will suffer hardship if the Court does not intervene.
There are other limited reasons that a Court may set aside a BFA and it’s essential to seek legal advice if you wish to modify or end a BFA.
Is a Binding Financial Agreement right for you?
While binding financial agreements, or prenups, may not be the most romantic aspect of a relationship, they serve a vital role in protecting your financial interests in Australia. We generally find that clients who have discussions about assets openly tend to come out of the discussions stronger and with clarity about their partner’s views.
While having two lawyers can be daunting from a cost perspective, entering into a BFA is often far cheaper than seeking legal advice if there is a dispute after the relationship. By understanding the legal requirements and seeking professional legal advice, you can create a BFA that provides peace of mind and financial security for both parties involved.
If you are considering a BFA then you need specific advice on your circumstances. Advocate Lawyers are experienced family lawyers. Contact us for an initial consult in relation to whether a BFA is right for you and see how we can assist you today.