Binding Financial Agreements

Perth Binding Financial Agreements (BFA)?

What are Binding Financial Agreements (BFA)?

You have probably heard the word or the term “prenup” or “prenuptial agreement”. This simply refers to a Contract or Agreement that parties enter into in respect to their financial situations. Financial Agreements can be entered into in 3 situations:

  • Before a marriage or de facto relationship commences;
  • During a marriage or de facto relationship, either before or after the parties separate; or
  • After a Divorce.

Financial agreements are your best bet if you are thinking about reducing costs of litigation and divorce. Our Perth Family Lawyers at ABMS LAWYERS can look at your past, present and future situations and provide you with advice on how to move on both financially and in your parenting issues. Your agreement can deal with issues such as:

  • Child support
  • Spousal support
  • Property division
  • Debt division
  • Estate rights
  • Costs

The only issue is that you will need the consent of your spouse, otherwise you will find yourself litigating unnecessarily. If you can reach an agreement about your issues or some of them, it is a good idea to have the agreement documented in writing. This will ensure your mind is at ease and you can move on to the next chapter of your life with peace of mind.

A word of caution. A binding financial agreement is a legally binding document which sets out the parties’ agreement in relation to financial matters between a married or de facto couple or same sex couple. People linked to either party via other relationships are called “third parties” and may be added as parties to the litigation if the case permits.

The jurisdiction or power of the Court or its power ceases to apply once a financial agreement is made by the Parties to a relationship or marriage. The Court does, however, retain its power to set aside such an agreement where circumstances permit.

Effect of a BFA on your rights

Entering a BFA means that one party will be giving up the right to include in the asset pool, in any future property claim, any assets being quarantined by the other party.

There is usually a clause in the agreement by which such an asset may or may not be taken into account, for example financial resources of one party who owns it in any future court proceedings for property settlement in favour of the financially weaker party. This is because the parties have the freedom to agree on what is or not included  in the agreement. Assets can be quarantined by agreement directly or indirectly.

What is meant by “Binding?”

The term binding simply means to impose a legal obligation or duties upon a person or a party to an agreement. To have a strong agreement that you can fully rely on in future, you will need to comply with the legal requirements. Otherwise, you will be throwing your money in the bin.

Requirements for a financial agreement to be binding.

A Perth Financial Agreement is binding only if:

  • It is a written agreement as to how the parties’ property and financial resources are to be dealt with upon the breakdown of a marriage or the relationship and/or as to spousal maintenance.
  • It is made when no other financial agreement is in force in respect to the parties’ assets, resources and division of those assets and needs upon the breakdown of the relationship.
  • It contains a separation declaration signed by at least one of the parties stating that they have separated and are living separately and apart when the declaration was signed (or last signed if both signed) and in the opinion of the parties making the declaration there is no reasonable likelihood of cohabitation being presumed.
  • For any maintenance clause, specify each recipient and the amount or the value of the property attributable to their maintenance.
  • As a release of future maintenance, recite the recipient as being able to support themselves without an income-tested pension, allowance, or benefit.
  • It is signed by all parties to the agreement.
  • Before signing the agreement, each party is provided with independent legal advice.
  • The effects of the agreement on the rights of that party are explained.
  • The advantages and disadvantages of making the agreement at the time that the advice was provided to the party making the agreement.
  • Either before or after signing the Financial Agreement each party is provided with a signed statement by the legal practitioner stating that the advice referred to in the above paragraph was provided to that party.
  • A copy of the statement of Independent Legal Advice by the legal practitioner is given to the other party or to the legal practitioner acting for the other party to the agreement.
  • The Agreement has not been terminated or set aside by a court with the power to set aside such agreements.

*If you don’t have proper legal advice from an experienced Lawyer who deals with these areas, you run a risk of having your agreement set aside. Your ex can claim that they didn’t know what they were getting into or that they didn’t understand the law and didn’t have the opportunity to obtain independent legal advice. When it comes to legal work, you sometimes get what you pay for. If you pay less money because you are cheap and your agreement is rushed, or if you download a precedent from the internet or pay for one on the internet which is not tailored to your individual circumstances because it is cheap you may regret this in the future.

Perth Binding Financial Agreements that do not comply with Australian Laws are pretty much useless.

To obtain independent legal advice from one of our experienced Family Law lawyers call us on 9468 3297, email us at office@abmslawyers.com.au, or click here. ABMS LAWYERS will contact you within 48 hours to answer your query.

Problems with Binding Financial Agreements (BFAs)

The main problems with Binding Financial Agreements are:

  • They can be impossible for the financially weaker party to get out of in the event of later hardship, where there are no children of the relationship and none intended by parties.
  • Where parties have had children or are thinking about children, BFA’s can require constant redoing or re-drafting so as not to risk them being set aside by a parties’ hardship due to a change in circumstances relating to a child. This factor is a problem for the financially stronger party expecting the agreement to be binding at all times even in circumstances where parties include a clause to the effect that the Binding Financial Agreement will be reviewed if a child comes along or the mother leaves employment to care for the child. However, that will not go far enough without a clause revoking the agreement or requiring Parties to negotiate and make a fresh agreement in light of the new financial circumstances of the parties. In circumstances where parties intend to renew their agreement as circumstances change it could be viewed as interfering in parties lives or even perhaps doubting a lawyer’s competency and often questioning why a lawyer “never sorted it out” to start with.
  • Another consideration with BFA’s is that parties entering into a binding financial agreement are required to provide full and frank disclosure of their financial position to the other party before entering into the agreement. Non-disclosure or insufficient disclosure would increase the risk of the agreement being set aside by the Family Court if the binding financial agreement is challenged in future. Disclosure can be a costly exercise depending on the extent of the financial position of a party.

What Are the Advantages and Disadvantages of Entering a BFA?

When it comes to legal matters, each case is taken on its own merit. This equally applies to BFAs. BFAs are taken on a case-by-case basis and will vary depending on the circumstances of the people into the Financial Agreement themselves and may include the following factors:

Advantages of Binding Financial Agreements

  • A financial agreement is not required to be fair, whereas a property settlement from the court is required to be just and equitable. BFA’s are often used in situations where one party is in a superior financial position and has greater assets or a greater income capacity which they want to protect. However, there is no law that forbids people from doing so.
  • A financial agreement cannot be set aside on the grounds of hardship if the parties have no children to each other.
  • The advantages of entering into a financial agreement should be weighed against the option of not having one. The freedom to negotiate a settlement should the need arise, often when circumstances of the parties have changed and when respective needs and means are known, apply to the Family Court for Consent Orders or issue proceedings and negotiate their way throughout the proceedings, matters do settle before or at trial in some situations.
  • Parties can choose to contract out of the property settlement and spousal maintenance provisions of a Family Law Act 1975 (Cth) and the Family Court Act 1997 (WA).
  • Parties avoid costly and time-consuming Family Court proceedings.
  • Parties are eligible for stamp duty deductions on any transfers of property (real property) between them.
  • The agreement will implement your joint papers and in the case of a quarantine of assets it will leave all other assets available for any future party settlement negotiations or proceedings in court. Parties may wish to exclude or quarantine from property settlement assets which were accumulated before the commencement of their relationship.
  • BFA’s can assist to provide some form of certainty in respect to what a party may or may not be entitled to in case of the breakdown of a relationship or marriage.
  • Entering a BFA may be more advantageous to a party with more resources and income and may produce a less favourable outcome if the matter went to Court, and the Court was required to make a ruling on the distribution of the assets of the parties.

Disadvantages of Entering into Binding Financial Agreements

  • If you have no children to each other and intend having none, the agreement will remain legally binding despite any unexpected worsening of a party’s financial circumstances such as loss of a job, failing of a business or serious injury.
  • The agreement could be set aside in the event of a material change of circumstances relating to a child of the marriage as a result of which a party will suffer hardship if the court does not set the agreement aside. A clause terminating the agreement upon or within a certain time after the birth of a child requiring you to negotiate a fresh agreement could guard against that in certain situations.
  • The future is unpredictable, and no amount of crystal ball gazing can insulate one from life’s adverse circumstances.
  • A unilateral quarantine of all or most of one party’s assets is likely to produce for the other party a worse ultimate outcome than could otherwise be expected in any later court proceedings.
  • The BFA removes a party’s ability and freedom to negotiate a settlement at the time separation occurs.
  • Each party is required to obtain specific independent legal advice in respect to the BFA itself but there is no guarantee the legal advice received by the other party to the agreement will ensure that the agreement is binding.

When a Financial Agreement May Be Appropriate

A financial agreement may be appropriate when it makes sense to both parties and it’s likely to be enforceable where its purpose is to:

  • Enable both parties for the future benefits of the children of their previous marriages to preserve certain assets of theirs from future claim by the other, and to limit the agreement for such purposes (mutual quarantine of assets).
  • To enable one party for the future benefit of the children of their previous marriage to preserve from future claim by the other special assets and to limit the agreement to that papers only (limited unilateral quarantine of assets).
  • To enable the agreement to operate as a release from future spousal maintenance in exchange for a satisfactory property settlement.

When a Financial Agreement May Not Be Appropriate

A financial agreement may not be appropriate:

  • For a couple that is intending to have a family. Children become the basis on which a financial agreement can be set aside due to a party’s hardship following a material change in circumstances.
  • Where there are no children, or none intended and one party is financially weaker than the other who may suffer hardship by being bound by its terms.
  • Where neither party has significant assets, liabilities or financial resources.
  • Where there is an unlimited unilateral quarantine buy a benefiting party.

Unilateral Quarantine of Assets:

In certain situations, a BFA can be a vehicle to enable one party to quarantine some or certain assets for the benefit of children of a previous marriage or relationship or other intended beneficiaries and to preserve those assets from future claims by the other party or to limit certain assets and limit the agreement for that purposes.

Mutual Quarantine of Assets

The purpose of this Agreement is to enable both parties for the future benefit of the children of their previous marriages (or identify any other intended beneficiary) to preserve certain assets of theirs from future claim by the other, and to limit the agreement to such property.

BFAs can also be used as a vehicle for parties to reach agreement to be released from future spousal maintenance in exchange for a satisfactory property settlement such as a clean break from each other financially.

Grounds on Which the Court May Set Aside a Binding Financial Agreement

The Family Court can set aside a binding financial agreement if and only if the court is satisfied that the following applies:

  • The agreement was obtained by fraud, including non-disclosure of immaterial matter or either party to their agreement entered into their agreement.
  • For the papers or paper to say that included the purpose of defrauding or defeating a creditor or creditors of the party.
  • With reckless disregard of the interest of a creditor or creditors of the party.
  • The agreement is void, voidable or unenforceable.
  • In the circumstances that have arisen since the agreement was made, it is impractical for their agreement or a part of their agreement to be carried out.
  • Since the making of the agreement, a material change in circumstances has occurred, being circumstances relating to the care, welfare and development of a child of the marriage or of the relationship and as a result of the change the child or, if the applicant has caring responsibility for the child as defined in subsection 2 a party to the agreement, will suffer hardship if the court does not set the agreement aside.
  • In respect of the making of a financial agreement, a party to the agreement engaged in conduct that was in all circumstances unconscionable or a payment flag is operating under part V11B on a supervision interest covered by the agreement and there is no reasonable likelihood that the operation of the flag would be terminated by a flag lifting agreement under that part or the agreement covers at least one superannuation interest that is an splittable interest for the purposes of the primal or act.
  • The Court can also set aside the agreement if there is proof of duress, undue influence, unjust enrichment or unconscionable conduct.

In the eyes of the court, duress need not involve a direct threat of physical violence, so long as there is sufficient operation to negate the reality of consent. Undue influence involves pressuring someone to sign the agreement, for example in circumstances where a party threatens not to marry another party if they do not sign the prenuptial agreement or the agreement.

The party not wishing for the agreement to be set aside must show that the transaction was fair and just in all circumstances.

Varying or terminating the BFA

A BFA maybe varied or terminated by a later agreement between parties’ if their material circumstances change. For example, if parties get married or have a child.

Should we each make or have wills even if we have a BFA?

Yes, you should have a will if you have a BFA because the agreement will only apply in the event of the death of either party so long as both of you make or have wills that are consistent with the terms of the BFA.

Effect of Death of a Party to Financial Agreement

A Binding Financial Agreement continues to operate despite the death of a party to it. In that event, the agreement operates in favour of and is binding on the personal representative of that party. Similarly, an order setting a binding financial agreement aside may, after the death of a party, be enforced on, behalf of or against the estate of the deceased party.

Upon the death of a party during proceedings:

  • The proceedings may be continued by or against the personal representative of the deceased and the applicable rules of the Court may make provision for the substitution of the personal representatives as a party to the proceedings.
  • If the Court is of the opinion it would have exercised its powers under this section if the deceased party had not died.
  • It still appropriate to exercise those powers.
  • The court may make any order that it could have made if the party had not died, being; an order for a transfer of property or other orders adjusting the rights of the parties upon an agreement being set aside and an order may be enforced on behalf of or against the state of the deceased party exemption from stamp duty any did or other instrument executed for their purposes of or in accordance with an order or financial agreement is not subject to any duty or charge under any law over state or territory or under any law of the Commonwealth the applies in relation to a territory the same exemption applies to aided or other instruments and a de facto property order or a financial agreement.

How we can help you in respect to BFAs?

  • We can provide you with advice so you can make an informed decision on whether to enter into the agreement and to know whether a BFA is good for you.
  • We can prepare the BFA or review a BFA on your behalf and ensure it is thoroughly explained for your benefit.
  • We can advise as to any proposed amendments to a Binding Financial Agreement if you have one already prepared from another Lawyer.
  • We can advise you on whether to quarantine part of or your entire assets for the purpose of securing your wealth against a claim by your spouse.

If you require assistance with preparation or advice in respect to an already prepared Binding Financial Agreement, contact us on (08) 9468 3297, via email or make an online booking.  

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