A Binding Financial Agreement is a highly effective tool in protecting and defending the wealth that parties to a relationship may have.
Married and de facto couples can enter into an agreement either before, on the threshold of, during and after, a relationship.
When there is a break down in the relationship, there is flexibility in the Agreement as to what each party is to retain in the event of a break-down in the relationship.
When there is a division of assets, there is no requirement that it be just and equitable. What is required however, is that the Agreement be prepared and executed strictly according to The Family Law Act 1975.
Therefore, where there is compliance with the legislation, even an Agreement that is unfair or draconian may be upheld.
It is possibly a little known fact that Binding Financial Agreements (BFA) could have more than one use and that it does not necessarily need to deal with the entirety of the pool of assets.
Assets may be dealt with selectively, for instance, a particular species or type of asset, provided it is correctly identified by the parties.
Thus, particular assets such as shares, corporate interests, and inheritances could be effectively protected and quarantined by means of a BFA.
A BFA may be used to achieve the following outcomes:
- To preserve an inheritance or an anticipated inheritance by providing that such inheritance be quarantined for retention by one of the parties;
- To preserve shares or an interest in a Private Company for retention by a party and thereby determine/maintain control of a business or corporate entity;
- Retain for the benefit of one party, interest in real property that that party may have owned before the commencement of the relationship;
- Retain/secure the benefits in superannuation assets, for a party.
The legal requirements for Binding Financial Agreements are set out in The Family Law Act 1975 – in section 90G(i) for married couples and section 90UJ(i) for de facto couples.
A Binding Financial Agreement is regarded binding subject to the following:
The Agreement has to be signed by all parties;
- Before signing the Agreement, each party has to be provided with independent legal advice from a legal practitioner, about the effect of the Agreement on the rights of that party and identify advantages and disadvantages, at the time the advice is provided;
- Either before or after signing the Agreement, each party must be provided with a signed Statement by the legal practitioner stating that the advice referred to in paragraph (b) above was provided to that party;
- A copy of that Statement of Advice provided to one party must be provided to the other party or to a legal practitioner for the other spouse party; and
- The Agreement must not have been terminated nor set aside by a Court.
A Binding Financial Agreement can be set aside under The Family Law Act upon the Court being satisfied that:
- The Agreement was fraudulently obtained. This includes failing to disclose relevant material facts prior to the Agreement;
- Either party to the Agreement entered into the Agreement:
- To defraud or defeat a creditor/s;
- Recklessly disregarding the interest of a creditor;
- If the Agreement is voidable or unenforceable at law;
- If circumstances have arisen since the Agreement was concluded that makes the Agreement impractical in part or in whole;
- If there has been a material change of circumstances since the Agreement was made and as a result, a child of a party to the Agreement will suffer hardship if it is not set aside; or
- If a party to the Agreement engaged in unconscionable conduct.
Apart from achieving financial stability and asset protection, the BFA can also be used as an estate planning tool, when a Will is prepared in conformity with it.
Parties can be in a BFA if they want to protect assets for the benefit of children of a prior relationship or for other members of their family.
Examples of such assets usually are a home owned prior to the marriage, which a party may intend preserving to be gifted to others via a Will.
The Supreme Court of Queensland in the 2008 decision of Hills v Chalk  QCA159 was of the unanimous view that the contents of a BFA were relevant in an Application for Family Provision by the surviving spouse.
The Court recognised that a BFA may be effective in preserving assets for the benefit of third parties such as children from previous relationships. This is because it contains in it, statements of intention in respect to the distribution of an Estate, that can be prepared in conjunction with a Will.
One can strengthen the dispositions made by a Will with a pre-existing BFA whereby parties to a relationship agree as to the extent they intend to intermingle their proprietary interests.
In this case, binding financial agreements may contemplate that parties fund their household expenses from a joint account but each of them would keep the assets which he or she brought to the relationship separate.
They can also express an intention to make Wills for the benefit of their respective children from previous relationships in relation to their separate assets. If this is done, there could be little doubt as to their intentions in relation to potential family provision claims by the surviving spouse.