Binding Financial Agreements, also known as BFAs, are entered into pursuant to the Family Law Act, and are a great tool for pre-determining the distribution of assets between couples if things turn sour. BFAs are commonly used by people who have been down the ugly road of family law disputes in the past. They’re also used by business people, or people who wish to ‘quarantine’ certain assets from their spouse for their benefit or that of third parties (for example, their children). Although a BFA is not the most romantic thing to propose in any relationship, it is certainly a responsible and mature way of taking appropriate steps to prepare for a worst case scenario, and therefore provides certainty and peace of mind.
What must a BFA encompass?
As lawyers, one of the most common questions we get asked in relation to BFAs is “can we enter into a BFA just in relation to certain assets?”
The simple answer is no, you can’t. Not if you want your BFA to be upheld anyway.
The requirements for entering into a BFA pursuant to the Family Law Act are very strict. Further, the validity of a BFA may be challenged in Court and are liable to be set aside.
The court has the discretion to set aside a financial agreement, and the circumstances in which a court will set aside a BFA include the following:
- if there has been a failure to disclose relevant matters (such as an asset, interest in a trust, or a real estate valuation);
- if the performance of the agreement is impracticable as a result of circumstances that have arisen after the agreement was entered into;
- if either party to the agreement engaged in unconscionable conduct in relation to the making of the agreement (which can include non-disclosure of assets);
- if the agreement is uncertain or incomplete.
Accordingly, if an asset is not disclosed or the agreement does not deal with how it will be ‘divided’ in the Event of separation, a court may declare the whole BFA void.
As a general rule, any asset or liability with a value in excess of $5,000 should be disclosed and incorporated into the BFA. If the BFA does not deal with all of the marital property, it can be void for uncertainty or on the basis that there was a lack of proper disclosure.
If you are considering entering into a BFA, you should consult your family lawyer as to what should be included. It is a tricky subject to bring up with your partner, as finances are a personal matter to begin with. If you are looking at protecting your assets in the event of a separation, looking to secure yours and your children’s interests for the future, or simply want to prepare for this unlikely event, get in touch with LegalVision on 1300 544 755 and our family lawyers will provide you with an obligation-free consultation today!