A Binding Financial Agreement is an agreement between two or more people that is compliant with the Family Law Act 1975 (Cth).
Binding Financial Agreements cover the division of property between the parties, superannuation and/or spousal maintenance. In dealing with these matters a BFA will outline how the parties are to manage their financial affairs. The purpose of a Binding Financial Agreements is to avoid the parties going to court to deal with the division of their property.
A BFA might also deal with any potential claims to each other's estate after death or potential inheritances. A Binding Financial Agreement entered into before marriage or before the commencement of a de facto agreement (also known as a "pre-nuptial agreement") would generally outline how the parties are to distribute their property in the event of separation.
Binding Financial Agreements
under the Family Law Act
When can you enter into a Binding financial agreement (BFA)?
A Binding Financial Agreement (BFA) can be entered in to at different stages of the relationship, each of which is dealt with under a separate section of the Family Law Act. They are as follows:
What makes a financial agreement "binding"?
Pursuant to the requirements of the Family Law Act (section 90G) a BFA is only binding if the following occurs:
(a) the agreement is signed by all parties; and
(b) before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and
(c) either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and
(ca) a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and
(d) the agreement has not been terminated and has not been set aside by a court.
If the above requirements are not met the BFA would not be binding on the parties.
A Binding Financial Agreement (BFA) can be set aside by a court in accordance with section 90K or 90UM of the Family Law Act, if:
1. there is evidence of fraud (this could include a failure to disclose assets or liabilities at the time the agreement was made).
2. the agreement was entered into solely for the purpose to defraud or defeat a creditor or was entered into with reckless disregard to a creditor's interests.
3. one party is experiencing hardship due to the agreement or in relation to a child of the parties.
4. the agreement is found to be void or unenforceable. This could be due to mistake, public policy, misrepresentation, one party was under duress at the time of execution, there has been a breach of the agreement or unconscionable conduct.
5. the agreement is deemed to be impractical due to a change in one or both of the party's circumstances.
6. there is an issue with superannuation, for example: the agreement provides for a superannuation interest that cannot be split.
A Binding Financial Agreement (BFA) can be terminated by agreement between the parties. Such an agreement must be written and satisfy the same requirements as those in entering in to a BFA, such as both parties must sign the termination agreement, each party must be provided with legal advice about the effect of the termination agreement the advantages and disadvantages of terminating the agreement and must receive a signed statement from the legal practitioner who gave them this advice.
A binding financial agreement can also be terminated by the parties by entering in to a new financial agreement which includes a provision that terminates the first agreement.
An alternative of entering into a Binding Financial Agreement (BFA) is settling the property division by way Consent Orders (through the Family Court of Australia). This applies only to resolving the division of property after the relationship has ended. Therefore, if you are considering alternatives to a Binding Financial Agreement in anticipation of a marriage or de facto relationship, during a marriage (but before separation) or de facto relationship then Consent Orders would not be suitable.
Consent Orders are filed in the Family Court of Australia and are intended to end the financial affairs between parties once and for all. Consent Orders are exactly what they seem; orders entered in to by consent by both parties. Therefore if your relationship has ended and your partner and you have agreed to the terms of settlement, Consent Orders may be the suitable option.
The advantage to Consent Orders as opposed to a Binding Financial Agreement is that the parties do not need to obtain a certificate of legal advice to make them binding. Consent Orders are also (arguably) more difficult to overturn or vary once the orders are made.
What if the Statute of Limitations has expired?
The Family Law Act imposes certain time limitations as to when parties can seek the court's assistance in settling their property affairs following separation. One advantage of a Binding Financial Agreement is that, because an application to the court is not required, parties can enter into such an agreement even after the limitation period has expired.
Therefore, if your de facto relationship ended more than 2 years ago or your divorce was finalised more than 1 year ago, you may still enter in to a Binding Financial Agreement.
The rule in the case of Black & Black
The well known case of Black & Black (2008) FLC 93-357 challenged the legislative requirements of Binding Financial Agreements. In this case the parties entered into a financial agreement during the course of their marriage when the wife was going through a personal injury claim. The husband believed the wife would receive $200,000 from this claim and was under the impression that he would receive half of this pursuant to the financial agreement.
The husband had made greater financial contributions to the property pool and on the belief that the wife would receive $200,000 from her personal injury claim, entered in to agreement that upon separation the parties would split the property pool equally. The husband was advised by his solicitor not to expect a significant settlement amount and not to enter in to the agreement however he did so anyway. The wife only received $40,000 as settlement for her personal injury claim.
The husband made an application to the court to set aside the agreement under section 90G of the Family Law Act asserting that there had been a change in the agreement after the husband had already received his certificate of legal advice from his solicitor. While the husband received legal advice regarding the change his solicitor did not issue him with another certificate. The husband also ran a technical argument by asserting that the agreement would not be binding as the certificate had not been attached to the agreement (ie. it did not satisfy section 90G(1)(b) of the Act).
At first instance the court found for the wife and stated that the agreement was in fact binding on the parties and set aside the husband's application. On this basis the court found that they did not have jurisdiction to alter the property settlement. The husband appealed the matter to the Full Court and it was found as the agreement had not complied with section 90G(1)(b) of the Act as the agreement did not contain a statement directly acknowledging that the husband (or wife) received legal advice, therefore the agreement could not be binding. The Full Court found that the agreement should have had another certificate of legal advice from the husband's solicitor annexed following the changes to the agreement. The husband's application was allowed.
The Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009 was the legislative response to Black & Black. The amendments provided that even if a Binding Financial Agreement did not comply with all the technical legislative requirements, the court has the discretion to declare it binding on the parties where overturning the agreement would be unjust and inequitable (pursuant to section 90G(1A(c)).