A Binding Financial Agreement (BFA) is a legally enforceable contract under the Family Law Act that allows couples – married, separated, or de facto – to set out how their assets, finances, and property will be divided during or after the relationship.
When couples make plans for the future, financial arrangements are often one of the most difficult issues to address. A family law financial agreement, also known as a Binding Financial Agreement (BFA), allows separating couples, married partners, or de facto partners to manage property and finances in a structured and secure way. These legally binding agreements are recognised under the Family Law Act and provide clarity about what will happen if a relationship ends.
BFA’s are also known by a number of names in Australia, including:
- Prenuptial & Pre-Marital Agreements
- Postnuptial, Post-Marital and Spousal Agreements
- Cohabitation & De Facto Financial Agreements
- Property, Financial Settlement & Family Law Financial Agreements
While sometimes referred to as ‘Prenuptial’ Agreements or ‘Postnuptial’ Agreements, Financial Agreements can be made before or during a relationship or after separation. They give couples greater control over how assets, liabilities and superannuation entitlements are divided without relying solely on the courts. This becomes even more important in second marriages.
Six Key Points To Understand About Binding Financial Agreements
For couples considering taking this step, there are six key points to remember:
- A BFA is a written property agreement made under the Family Law Act.
- It can be made before, during or after marriage or a de facto relationship.
- Each party must have received independent legal advice from different lawyers.
- The agreement covers the asset pool, including current assets, debts and liabilities.
- The agreement can deal with practical issues such as spousal maintenance and financial support.
- Agreements can be set aside if they are not properly drafted, unfair, or if a major change occurs.
These key points highlight both the opportunities and responsibilities that come with financial agreements.
De Facto Relationships & Cohabitation Agreements
Financial agreements are not limited to married couples. In Victoria, de facto partners – including same-sex couples – can enter into cohabitation agreements or Binding Financial Agreements (BFAs) under the Family Law Act. While other states, like Western Australia, have some legislative differences for de facto couples, the principle is the same – couples can protect assets and plan for separation.
Why Do Couples Enter Into Financial Agreements?
Couples may decide to make a financial agreement when relationship issues arise or to prevent future uncertainty.
Scenarios that commonly arise include:
- One partner is the higher income earner and wishes to clarify support obligations.
- Protecting family businesses, family farms or other businesses that pre-date the relationship.
- Ensuring that assets from previous relationships are preserved for children.
- Managing expected inheritances, trust funds or other gifts.
- Addressing parties’ occupations, earning capacity and future capacity to support themselves.
- Managing superannuation entitlements or complex financial resources.
By putting clear arrangements in writing, separating couples can reduce the likelihood of disputes and amicably separate with certainty about their financial future.
How Are BFAs Able To Safeguard Financial Resources & Protect Assets?
A Binding Financial Agreement protects assets by legally recording how property, superannuation, inheritances, or businesses will be divided if separation occurs. Because it is enforceable under the Family Law Act, a BFA prevents assets from automatically forming part of the shared property pool. This means family businesses, future inheritances or assets intended for future generations can be preserved. With independent legal advice, both parties understand their rights and obligations, reducing the risk of costly disputes and ensuring the agreed distribution is upheld.
Differences Between BFAs & Informal Written Agreements
Informal agreements are not legally enforceable and often lead to disputes, while Binding Financial Agreements provide certainty and protection. Though informal arrangements may seem more manageable, they can result in costly conflicts. A binding agreement clearly outlines financial matters, reducing risk and helping ensure a smoother separation.
Differences From Consent Orders
Some people confuse BFAs with consent orders. Consent orders are agreed upon by a couple and approved by the Federal Circuit and Family Court of Australia after a relationship ends, while financial agreements are private contracts drawn up at any time before, during or after a relationship. Both can provide finality, but BFAs offer greater flexibility and privacy. They also allow agreements to be drafted early on, when couples are not amidst the emotional upheaval of divorce or separation, which can significantly cloud logical decision-making.
Consent orders require court oversight and approval, and can also cover parenting matters, while financial agreements allow couples to resolve matters privately, provided each has received independent advice. They cannot include Parenting Orders. Both methods have their advantages, but couples who wish to plan ahead may prefer the privacy and efficiency of a financial agreement. Consent Orders do not require lawyers. Financial Agreement require both parties to have separate lawyers.
Benefits Of A Properly Drafted Agreement
A well-prepared agreement provides more than just a legal safeguard to protect existing assets. When parties enter into a Binding Financial Agreement, they enjoy several practical benefits:
- Agreed property distribution means assets and debts are divided according to the couple’s intentions.
- Parties feel secure knowing that they have planned for possible outcomes and can avoid unnecessary arguments and financial stress if they separate.
- Avoiding, or less costly, legal expenses later on, since disputes can often be resolved without going through lengthy litigation.
- Avoiding reliance on the court to decide on an acceptable division.
- Avoidance of disagreements, stressful court action or court delays that may arise with other types of property settlements.
Practical Issues To Consider
When preparing a financial agreement, Family Lawyers look at many factors that affect fairness and enforceability.
These may include:
- The size and structure of the asset pool
- Parties’ occupations and earning capacity
- Future capacity for income and support
- Contributions made during the relationship
- Potential for a major change in circumstances (for example, illness or caring responsibilities)
- Whether the parties are likely to have children
These practical issues ensure the agreement reflects reality, not just theory. A Lawyer’s role is to provide independent advice so each party understands their rights, obligations and risks before signing.
Termination & Variations To Agreements
Like any contract, financial agreements can end. If both parties no longer want the financial agreement to apply, they can make a termination agreement. Alternatively, a court may set aside an agreement if it was not properly drafted, if there was fraud or duress, or if a major change makes it impractical.
For example, if an agreement no longer addresses the needs of children after a relationship breakdown, a court may intervene. This is why ongoing legal advice is essential, even after an agreement is in place.
Costs & Value Of Agreements
Some couples worry about legal costs, but a financial agreement is often far more cost-effective than going through drawn-out property settlement disputes in court. In fact, the certainty offered by a properly drafted agreement can save significant time, money and emotional strain.
The upfront investment in legal drafting ensures that the agreement is enforceable and reflects the couple’s true circumstances. It also helps avoid unexpected disputes if an ex-partner or former partner later challenges property arrangements.
Drafting A Binding Financial Agreement
While legal costs are understandably a concern, we’ve provided a few rough estimates to help you budget realistically. Drafting a family law financial agreement for a simple situation typically costs between $5,000 and $7,000. If your asset pool is large or complex, has business holdings, multiple properties, trusts, offshore interests or superannuation entitlements, expect costs to rise, possibly to between $10,000 and $15,000.
Reviewing a BFA
A legal review of your agreement to confirm it is still valid and reflects your circumstances usually costs between $2,000 and $4,000, depending on complexity.
The Key To Successful BFAs? Legal Advice & Drafting
Independent legal advice is essential when creating a Binding Financial Agreement. An experienced Family Lawyer ensures the agreement meets Family Law Act requirements, is tailored to your circumstances, and provides clarity on rights and obligations, making it both practical and enforceable.
Independent legal advice is vital when creating this type of agreement. Without it, it may be unenforceable or challenged in court. An experienced Family Lawyer ensures the agreement meets Family Law Act requirements, reflects your circumstances, and provides clarity on rights and obligations.
Entering a Financial Agreement in a New Relationship
Bringing up a Family Law Financial Agreement early in a new relationship may feel awkward, but it can actually strengthen trust. Framing the discussion as a way to protect both parties’ interests helps avoid misunderstandings later.
Couples can talk about practical matters such as their current assets, the party’s liabilities, and expectations for financial contributions. It is important that both people receive independent advice so no one feels pressured.
When raised respectfully, a Financial Agreement in a new relationship can reassure both partners that they are free to focus on building their life together without hidden concerns about money. It’s about creating security and transparency, not distrust.
Making a Financial Agreement During a Relationship
Sometimes couples decide to formalise a property agreement after they have been living together or married for some time. This might happen when relationship issues arise, or when a major change occurs, such as buying a home, starting other businesses or having children.
Discussing a financial agreement during a relationship should be approached openly, with each partner able to explain their reasons. Highlighting the benefits, such as reduced legal costs, clarity around superannuation entitlements, and protection of the asset pool, helps both parties see it as a positive planning tool rather than a sign of conflict.
Couples can ensure that the agreement is properly drafted and fair by ensuring both partners obtain independent legal advice. When handled carefully, these agreements give couples peace of mind and allow them to focus on their shared goals.
Reaching An Agreement With Your Former Partner
Sometimes, negotiating a financial agreement can be difficult, particularly if you and your ex-partner disagree about contributions or expectations. However, with the guidance of experienced divorce lawyers, many couples succeed in reaching an agreement without litigation.
If your ex-partner agrees to the terms, the process can be relatively straightforward. Where disputes remain, mediation can be a valuable tool to resolve issues and help couples avoid court.
Terminating A Binding Financial Agreement
A Binding Financial Agreement can be ended in two ways: by both parties signing termination documents or through a court order. Termination is rarely straightforward without first reaching agreement, as it can affect property settlements, superannuation, and spousal maintenance rights.
Legal advice is essential before taking this step. A lawyer can explain the legal and financial consequences, help prepare the required documents, and ensure that each party’s interests are protected. Careful planning avoids unintended outcomes and ensures the termination process is handled correctly under the Family Law Act.
Why Is Independent Legal Advice Mandatory?
The law requires that both parties must have received separate, independent legal advice before signing a financial agreement – or terminating one. This ensures that no one is pressured or left unaware of the consequences. Lawyers must explain the effect of the agreement and the advantages and disadvantages for their client.
Without independent advice, the agreement will be unenforceable. This safeguard reflects the seriousness of financial agreements and their long-term impact.
Need Assistance With A Binding Financial Agreement?
Speak with Pearsons Lawyers today to find out where you stand. Our experienced Family Lawyers provide clear advice on drafting, reviewing and terminating BFAs. Call us on 1300 699 688 or get in touch via our contact form for your free appointment with our experienced team of Family Lawyers.
