Are They Worth It? Evaluating Binding Financial Agreements

By Holly Pitt, Senior Associate and Nationally Accredited Mediator (NMAS)

Commonly referred to as “pre-nups”, Binding Financial Agreements (BFAs) are valuable tools for individuals seeking to protect their assets in the event of a relationship breakdown. BFAs allow couples to establish a clear framework for managing their finances and property. These agreements can be made before, during, or after a relationship.

What Makes a Strong BFA?

At Conditsis Lawyers, our family law team frequently fields the question, “Is a BFA really worth it?” The enforceability of a BFA depends on its adherence to strict legal standards as outlined in the Family Law Act 1975 (Cth). Several factors determine the validity and enforceability of these agreements:

1. Independent Legal Advice: Both parties must receive independent legal advice from separate lawyers before signing the BFA. This ensures that each party fully understands their rights, obligations, and the implications of the agreement, including its advantages and disadvantages.
2. Complete Disclosure: Full disclosure of all assets, liabilities, and financial resources is critical. Failure to provide accurate and comprehensive financial information can invalidate the BFA if it is later discovered that one party withheld material facts.
3. No Undue Influence or Duress: BFAs must be entered into voluntarily and without coercion. If it can be shown that one party was pressured or unfairly influenced into signing the BFA, the court may set it aside.
4. Proper Drafting and Execution: The BFA must be carefully drafted to cover all relevant financial matters, including property division and spousal maintenance. It should be executed in accordance with legal formalities, including signatures from both parties and their respective lawyers.
5. Certainty and Clarity: The BFA should contain clear and unambiguous terms regarding asset division in the event of separation. Vague provisions can render the agreement susceptible to challenge.

Circumstances Leading to a BFA Being Set Aside

Courts may set aside BFAs under certain conditions:

1. If the BFA was obtained by fraud or if a party failed to disclose a material matter.
2. If the BFA was entered into to defraud or defeat a creditor or with reckless disregard for the interests of a creditor.
3. If the BFA was obtained to defraud another person in a de facto relationship with a party to the BFA.
4. If a party failed to disclose relevant assets.
5. If the BFA is void, voidable, or unenforceable due to improper drafting, lack of signatures, no independent legal advice, or incomplete disclosure.
6. If circumstances have arisen since the BFA was made that make it impracticable to carry out the BFA or part of it.
7. If a material change in circumstances relating to the care, welfare, and development of a child of the relationship has occurred, causing hardship if the BFA is not set aside.
8. If a party engaged in unconscionable conduct or duress in the process of developing the BFA, such as threatening the other party to sign.

These grounds are outlined in sections 90K and 90UM of the Family Law Act 1975 (Cth).

Should You Get a BFA?

Even if the requirements of the Family Law Act 1975 (Cth) are met, a party may still take the BFA to court to argue that it should be set aside for one of the reasons listed above. The reliability of a BFA hinges on compliance with legal prerequisites and meticulous drafting.

BFAs are most effective when both parties approach the process in good faith, with transparency and mutual understanding of their financial rights and responsibilities. We advocate for BFAs in situations where they can clearly outline the intentions of the parties in the event of a relationship breakdown.

Those considering a BFA should seek guidance from our experienced family lawyers, who can provide tailored advice to ensure the BFA is drafted to withstand potential challenges.