Since 2000, couples have been able to enter into an agreement which binds some or all of their financial aspects in respect to the relationship and therefore distinguish the jurisdiction of the Courts to make Orders under the Family Law Act 1975 (Cth). This has been available to de facto couples (regardless of gender) since 2009.
A Binding Financial Agreement (“BFA”) can be made prior to marriage (“pre-nup”), during an ongoing relationship or as a settlement agreement.
As time goes on and financial circumstances change, one or both parties may not be satisfied with the terms of the BFA when the relationship fails. Therefore, it is vital to recognise that at the very outset a BFA will be scrutinised by the other party, their lawyer and the Courts to determine if there is any basis on which the BFA may be set aside, in the hope that the party is not worse off than if the matter was heard under the Family Law Act 1975 (Cth).
A BFA, where parties can self regulate the financial matters of their marriage or de facto relationship are particularly important in:
- Second or subsequent marriages or de facto relationships where assets are sought to be protected for the children of prior marriages/de facto relationships.
- Protection of multi-generational or family business wealth.
- Significant disparity of wealth between the parties
A sample of factors, many more than listed, must to be considered prior to drafting a BFA:.
- The Agreement must be entered into voluntarily and freely without undue pressure from the other person, otherwise this could be a basis for setting the BFA aside.
- The complexities of drafting a binding document that covers the future contingencies.
- The need for adequate disclosure of all relevant matters, as a BFA can be set aside for fraud.
- The bargain between the parties does not need to be fair, however, if it is patently unfair to one of the parties the Court is very likely to set it aside
- Give both parties plenty of time to come to an agreement without rushing into a BFA at the last minute (ie 2 days prior to marriage).
- Explain the BFA so that the client fully understands
- Make sure it is completed formally, according to Law.
A BFA can be a very valuable tool but it must be entered into with full knowledge of its limits.
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