Comprehensive Guide on Binding Financial Agreements
A Binding Financial Agreement (also known as “BFA”) is a detailed agreement between two parties to a marriage or de facto relationship on the division of property, finances and resources.
A BFA deters the parties’ signatory to the BFA from seeking further settlement sum in the future. It is one of two methods to settle financial proceedings. However, there are instances where a disadvantaged party has instituted Family Court property proceeding long after separation. The Family Court may have jurisdiction to hear the matter if the disadvantaged party has sought leave/permission from the Court to institute proceedings.
When should you enter a BFA?
BFAs can be entered before, during or after a relationship or marriage has broken down.
The execution of a BFA acts is a dismissal of rights and entitlements that you will receive pursuant to the Family Law Act or Family Court Act. In other words, you are usurping the Family Court’s jurisdiction from applying the principles of a “just and equitable” settlement, as contained within the provisions of the Act.
This may be detrimental to you depending on your circumstances and contributions to the marriage or de-facto relationship.
BFAs are effective in dealing with matters such as spousal maintenance, maintenance for de facto parties, property settlement and splitting superannuation. BFAs cannot deal with child custody or child support related matters.
Examples of BFA include:
- Pre-Nuptial Agreements
- Post-Nuptial Agreements
- Cohabitation Agreements
- Separation Agreements
- Divorce Agreements
How to enter a BFA?
There are strict rules that each party must conform to for an agreement to be binding and enforceable.
In short, section 90G of the Act requires the following:
- Independent legal advice provided by a legal practitioner; and
- A written agreement signed by the parties.
There is a catch to providing independent legal advice. The party looking to sign a BFA should not recommend a lawyer to his or her partner. There are instances where BFAs have been set aside because of this “buddying” behaviour. It is prudent that both parties seek independent legal advice from practitioners of their own choosing.
The cornerstone of an effective BFA – Independent Legal Advice
Competent legal advice may be obtained at any stage of the BFA process. It is a requirement for both parties to obtain a signed statement of advice before they can enter a BFA arrangement. This will equip both parties with the knowledge required to decide on the prudency of the agreement. The recent case study of Purdey & Millington  FCC 213 talks about the primacy of obtaining comprehensive legal advice, independent from the other party to the agreement.
In the case of Hoult, a ‘one-off’ consultation or a 50-minute meeting will not satisfy the required adequacy of legal advice needed to secure the agreement.
Our recommendation for receiving independent legal advice is to receive written legal advice from your legal counsel.
Legal advice on BFAs may include the following:
- Whether you are eligible to enter into a BFA;
- The effects of the proposed BFA on your rights;
- The advantages and disadvantages of the proposed BFA;
- The financial advantages and disadvantages of the proposed BFA;
- Binding nature of the BFA;
- Execution and signing of the agreement;
- The grounds to set aside or terminate the proposed BFA;
- Rights and entitlements to the division of the asset pool under the discretion of the Family Court in the absence of a BFA;
- The practicality for executing the proposed BFA.
Substance triumphs over form -The Written Agreement
It is wise to note the clear distinction between the requirements for effectively forming a BFA and the actual substance that the BFA contains.
Effective formation of a BFA requires strict compliance with the formalities of The Family Law Act 1975 (Cth) (the Act). Therefore, it is necessary to have a carefully and comprehensively drafted BFA. While it is not exceedingly difficult to conform to the requirements of the Act, there is an inevitable requirement for a high calibre of skills, understanding, experience, expertise and attention to details to secure agreements. Otherwise, the BFA may be set aside by the Family Courts.
It is common for parties to lose focus on building the actual substance while trying to conform to the strict requirements of the Act. The form should never defeat the actual substance of the BFA.
It is important to ensure that the BFA contains the full asset and liability schedule, and how the parties propose to divide them.
What lies in the heart of a successful BFA?
1. Open and honest discussion with the other party
There are no shortcuts to safeguarding your resources. Be it post-separation, during co-habitation, after a divorce or even before a marriage, it is important to be transparent about the parties’ true assets and liabilities. Your perceptions on how your partner may react to this idea must not hinder you from holding the discussion effectively.
During the discussion with your current or former partner, it is a good idea to raise up issues and identify the parties’ respective interest. Like mediation, it is important to deal with the issues, not the person.
2. Thorne v Kennedy  HCA 49: The effect of the inequality of bargaining power on BFAs
In Thorne v Kennedy the parties met through an online dating site. At the time, Ms Thorne was 36 years old, living in the Middle East, and had no assets. Mr Kennedy was 67 years old and possessed assets worth between 18 to 24 million dollars. Ms Thorne moved to Australia to get married. Ten days before the marriage, Mr Kennedy took Ms Thorne to a lawyer to obtain legal advice on a proposed BFA. The lawyer had ‘significant concerns’ over the proposed agreement and advised Ms Thorne on how the BFA would be exceedingly detrimental to her. Ms Thorne was strongly advised not to sign the agreement. Ms Thorne signed the agreement anyway as Mr Thorne had told her that there would be no wedding if the agreement was not signed.
Eventually the parties separated and the BFA was under the scrutiny of the courts. The courts were of the view that Mr Kennedy had allocated ‘piteously small’ lump sum payments based on the terms of the BFA. The courts enforced that Mr Kennedy had taken advantage of his Ms Thorne’s vulnerability and her ‘powerless’ state to enter into an agreement that was ‘entirely inappropriate and wholly inadequate.’
The wife was financially and emotionally dependent on Mr Kennedy. It was found that the agreement was entered into as a result of undue influence, illegitimate pressure and unconscionable conduct. This is a landmark case that reflects on the interpretation of BFAs.
This case shows how difficult it is to enforce a BFA if there is an imbalance in power between the parties. While there is no ‘justice and fairness’ to BFAs it is crucial that you are aware of the following:
Always read and consider the proposed BFA carefully. Both the parties must carefully examine the practicality of the proposed BFA well in advance of signing to avert any risky situation. There must be room for both parties to negotiate on the terms of the BFA. It must reflect on both parties’ interest and needs.
Understand both sides to the execution of your proposed BFA and the foreseeable risks and benefits involved. As evident in Thorne V Kennedy, the courts may set aside a BFA if it is found that it is heavily favourable towards one party. This may, in itself, establish undue influence and unconscionable conduct.
Part of this process also requires for you give accurate and complete information to your independent legal advisors. Full and frank disclosure of all your assets and liabilities is paramount. Otherwise, there is a high likelihood for your agreement to be set aside.
Another valuable lesson to be learned from this case is that the time you decide to enter into a BFA may have an adverse impact on the outcome of your BFA. For example, if it is executed too close to a significant day such as your wedding then it may impose risks on the enforceability of your BFA. There must be ample time for both parties to reflect on the agreement and the independent legal advices. Negotiating the terms of a BFA earlier in a relationship may be a safer and viable option..
3. Avoid some of the common mistakes of a bad BFA
- a. Inadequate legal advice
As previously mentioned, it is mandatory to obtain proper legal advice. Otherwise, there is a high likelihood for your agreement to be set aside. In Black & Black , the court held that there are no exceptions to the requirement of a strict compliance with 90G of the act.
- b. Wrong form of certificate or letter of legal advice
In Blackmore & Webber  FMCA Fam 154, the court rejected the agreement to be an enforceable one due to a technical defect in the wording of the legal certificate and the letter of advice in the recitals to the agreement.
- c. Agreement signed in counterparts
In Millington & Millington  FamCA 687, the courts found that the agreements to be signed in counterparts as opposed to a single document that had the signatures of the parties and the signed legal advices from both the lawyers. The court ruled that this did not conform to s90G(1)(a) and (e).
- d. No full and frank disclosure of financial position
In Ainsley & Lake  FCCA 2132 the BFA failed to include one of the party’s superannuation interest that was valued at $35 000 during the time when the agreement was signed. The agreement was set aside under s90(K)(1(a) as the agreement was found to be obtained by fraud.
Consent Orders vs Binding Financial Agreements
Consent orders are court enforced orders which can deal with both property and parenting matters. In contrast to a BFA, consent orders attract an overriding duty from the Family Court in the decision-making process to ensure that the effect of the proposed orders are just and equitable. For example, when consent orders in relation to parenting matters are made the courts must be satisfied that the orders are in the child’s best interests before enforcing the order.
Consent orders may be advantageous as there is no mandatory requirement to obtain independent legal advice. Consent Orders are enforced by the Family Court with a high-level of certainty. Generally, consent orders are final and can only be amended in limited circumstances.
It is important to note that you will only be able to apply for a consent order following a separation and there are time limits for applying for consent orders for both married and de facto couples.
Contemplating whether a BFA is good enough to resolve property proceedings? Contact us at WN Legal.
Authored: Jun Khew Wong, Shalini Thegarajan