What do I need to know about Binding Financial Agreements?

20/10/2014

The appropriate documentation will depend upon the circumstances of the parties. 

There are other areas for consideration when one finalises the financial matters between the parties following separation and if the parties were married divorce.  These would include such things as:

(a)       Rights to make a claim on the other party’s estate.  This is usually resolved by appropriate releases under the Succession Act.

(b)       The appropriate insurances that cover disabilities and/or death.  It is critical that you consider with us the alternatives so as to achieve your desired outcome following the breakdown of the relationship.

Please contact Richard Watson or Dennis Grant at Watson & Watson to ensure the documentation of the resolution is effective.

The Family Law Act 1975 provides a procedure for certain people to enter what are often referred to as Pre-Nuptial Agreements.  In fact the Act provides a method of protection of assets in a range of situations and the Agreements are known as Binding Financial Agreements.

What is a Binding Financial Agreement?

A Binding Financial Agreement is an agreement between the parties to regulate their financial position either during a marriage / de facto relationship or after the breakdown of the marriage / de facto relationship.  The agreement to be binding must comply with the requirements of the Family Law Act

When is a Binding Financial Agreement useful?

The Binding Financial Agreement can be useful where the circumstances are other than the marriage or de facto relationship entered into where there is relatively equal financial and other circumstances in the relationship.  It is possible and useful to enter into a Binding Financial Agreement before maraige.  This is often called a Prenuptial Agreement.  Also it is useful when a relationship breaks down in certain circumstances, as it can provide some better protection than a Court Order.  Some of the circumstances which the Binding Financial Agreement is useful are:

(a)       Where there is a second marriage and the parties to the marriage have children by prior relationships;

(b)       Where there is significant age difference between the parties;

(c)        Where there is significant differences in financial position including capacity to earn income;

(d)       Where the substantial basis for the financial maintenance of the parties are investments, for example, in property, trusts, companies, shares;

(e)       Where there is inherited or likely to be inherited funds;

(f)        Where there is very significant superannuation compared with the otherwise net assets that would be available to the parties for division;

(g)       Where the parties wish to regulate what will happen in various circumstances.

Who can enter a Binding Financial Agreement?

The Act entitles the following persons to enter into a Binding Financial Agreements:-

(a)       married couples;

(b)       de facto couples;

(c)        persons contemplating marrying;

(d)       de facto couples; or

(e)       persons contemplating entering into a de facto relationship.

Parties can agree to regulate their rights, obligations and entitlements by Binding Financial Agreements. These are enforceable if matters go wrong.  The Agreements can regulate the parties’ rights, obligations and entitlements before entry into the marriage or relationship, during the marriage or relationship or after the termination of the relationship and/or after divorce.

The relevant provisions of the Act are to be found in Parts VIII and VIIIAB of the Family Law Act 1975.  Part VIII applies to marriages and Part VIIIAB applies to de facto relationship.

What can a Binding Financial Agreement do?

A Binding Financial Agreement can regulate:-

(a)       Division of property and finances after breakdown of the marriage or breakdown of de facto relationship.

(b)       Responsibility for debts after breakdown of marriage or de facto relationship.

(c)        Superannuation entitlements and division of these entitlements.

(d)       Spousal maintenance entitlements and indemnities.

(e)       Other issues between the parties.

When and why is a Binding Financial Agreement binding?

A Binding Financial Agreement will be legally binding on the parties to the Agreement when the requirements under the Act are satisfied. There are strict requirements which need to be complied with to ensure that the Agreement complies with the requirements of the Act. Amongst other requirements the Agreement must :-

(a)       Have been signed by both parties.

(b)       Both parties must obtain independent legal advice prior to entering the Agreement.

(c)        The technical requirement of the Act must be strictly complied with.

Why have a Binding Financial Agreement?

The Agreement can provide:-

(a)       Certainty and protection of assets and avoidance of dispute.

(b)       Flexibility.

(c)        Time consideration.

(d)       No need for approval by the Family Courts

Can a Binding Financial Agreement be terminated/overturned?

A Financial Agreement is not an Order of the Court and can be set aside in accordance with the requirements of the Act but the requirement for setting aside the agreement are stringent and may be hard to satisfy. The requirements to set aside a Binding Financial Agreement are:

(a)       A Financial Agreement may be terminated by Consent of both parties only by:

  • including a provision to that effect in another Financial Agreement entered into between the parties; and
  • making a written agreement terminating the Financial Agreement (known as a Termination Agreement).  

Can a Court Set Aside a Binding Financial Agreement?

The Court may also set aside a Financial Agreement if, and only if, the Court is satisfied that:

(a)       the Financial Agreement was obtained by fraud; or

(b)       a party to the Financial Agreement entered into the Financial Agreement for the purpose or for the purposes that including the purpose of defrauding or defeating a creditor or creditors of the parties; or with reckless disregard of the interests of a creditor or creditors of the parties;

(c)        a party (the Agreement party) to the Financial Agreement entered into the Financial Agreement:

  • for the purpose of, or for the purposes that included the purpose of defrauding another person who is a party to a de facto relationship with a spouse party; or
  • for the purpose, or for the purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under s.90SM (or a Declaration under s.90SL, in relation to a de facto relationship); or
  • with reckless disregard for those interests of that other person; or
  • the Financial Agreement is void, voidable or unenforceable; or
  • circumstances that have arisen since the Financial Agreement was made make it impractical for the Financial Agreement or a part of the Financial Agreement to be carried out.
  • since the making of the Financial Agreement a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or if the Applicant has care and responsibility for the child a party to the Financial Agreement suffer hardship if the Court does not set aside the Agreement; or
  • in respect of the making of a Financial Agreement a party to the Financial Agreement engaged in conduct that was in all the circumstances unconscionable; or
  • a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under the Part; or
  • the Agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.

What is the effect of a Court setting aside a Financial Agreement?

  • If the Financial Agreement is set aside then each party is free to apply to the Court for Orders in the usual way for spousal maintenance and property division.  Of course time limits and rules that otherwise apply will also apply.

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