A Binding Financial Agreement (BFA) is the Australian equivalent of a prenup, covering financial settlement, spousal maintenance and any other incidental issues.
BFAs are used to agree in advance on how a couple’s property and other assets would be distributed should their marriage or de facto relationship break down. They can be entered into at any stage of a relationship, i.e. before, during or after a marriage or de facto relationship. Couples may consider entering into a BFA if one party has more property, assets or is expected to receive an inheritance at a later stage.
Some benefits of entering a Binding Financial Agreement include:
- Establishing a level of reassurance if one or both partners has been through a separation or divorce before.
- Protecting some or all of the assets from each party.
- Being able to specify the ground rules regarding how the couple will acquire property, who will pay the bills, and where weekly wages or income will be saved.
- Preserve family or other businesses for future generations.
Properly drafted and executed BFAs are particularly beneficial for those who want to establish a level of reassurance that there would be a harmonious division of property and assets in separation or divorce without the need for stressful court action. A BFA can also make both parties feel secure knowing that any property or assets accumulated before their relationship or marriage is safe.
Couples should also be aware, however, that there can be some risks and downsides to entering a BFA. They include:
- Legal fees for drafting the agreement.
- Content of the agreement may be complicated.
- Use of the agreement could be unfair to one-half of the couple.
Couples also need to ensure that the BFA is, in fact, binding. Both parties must sign the BFA and receive independent legal and financial advice before doing so. It is also worthwhile to evaluate the potential effects of the BFA on the relationship, especially if it is considered unfair to one-half of the couple.
This financial agreement can be made before, during and after the marriage or de facto relationship. But for it to be legally binding, both parties must sign it and have acquired legal advice before doing so. The legal advisor should inform the parties of the advantages and disadvantages of such an agreement and sign a certificate that states that advice was provided to the parties.
The agreement can cover the division of property and finances, financial support, maintenance of one party after the breakdown of the relationship, and any incidental issues.
The most common reason to enter such a financial agreement is to protect assets an individual owned before getting into the relationship. This allows a distinction between personal and jointly owned assets. Such an agreement also allows parties to protect future income that they may receive through inheritances or investments.
Any allocation of debts such as loans or mortgages can also be made under this agreement, preventing shared liability for a personally owned asset. A comprehensive agreement will reduce costly court proceedings by minimising conflict if the relationship fails. It may be difficult to discuss such an agreement, especially at the start of a marital or de facto relationship. Still, it is ideal for partners who prefer to keep ownership and responsibilities of their assets separated.
Consulting with a professional advisor before entering into any binding financial agreements is highly recommended.