The Ultimate Binding Financial Agreements (BFA) Guide
A Binding Financial Agreement (BFA) is a contract between parties. It outlines how assets, liabilities and other financial matters will be divided in the event of a relationship breakdown. They are available for couples about to get married, already married or in a de facto relationship (including same-sex relationships). Our Binding Financial Agreements guide will give you the knowledge you need to navigate property matters.
Quick facts
- A Binding Financial Agreements Guide (BFA) manages property matters.
- A BFA must comply with the Family Law Act 1975.
- It covers many assets and liabilities.
- Choose a family lawyer with relevant experience.
- There are risks with BFAs.
- There are many ways to manipulate an asset pool.
- There are ways to protect yourself.
- A BFA can be set aside for various reasons.
- BFAs have pros and cons.
- There’s a court process to set aside a BFA.
Legal Requirements for a BFA
A BFA must comply with the Family Law Act 1975 to be binding:
- In writing: The agreement must be in writing.
- Independent legal advice: Each party must receive independent legal advice from a family lawyer about the agreement.
- Signed statements of advice: Both lawyers must sign a statement confirming the advice given to their client.
- Voluntary: The Binding financial agreements guide must be entered into voluntarily, without pressure, duress or undue influence.
- Full disclosure: Both parties must disclose full financial information, including assets, liabilities, income and superannuation.
- Legislation: The BFA must comply with sections 90B-90KA (for married couples) or sections 90UA-90UN (for de facto couples) of the Family Law Act.
Choosing a Family Lawyer
Choosing the right family lawyer is key to a valid BFA and protecting yourself. Consider:
Experience
Look for a lawyer who has experience working with BFAs. Property pools come in all shapes and sizers. Choose a lawyer who has experience with kinds of assets in your property pool. An experienced lawyer will have knowledge of legal intricacies and can anticipate potential issues that may arise, so your agreement is solid and enforceable.
Reputation
Research the lawyer’s reputation. Read online reviews, check testimonials or ask for referrals from friends, family or professional networks. A lawyer with a good reputation will deliver better service and outcomes.
Transparent fees
Ensure the lawyer is transparent. They should give you a clear estimate or fixed fee so you can budget and avoid surprises. For example, a lawyer’s fixed fee service may require clients to have completed disclosure and already agreed on the property division.
Communication
Choose a lawyer who listens to you, answers your questions clearly and keeps you informed about the progress of your Binding Financial Agreements Guide. Good communication is key to you understanding the terms of your BFA and feeling comfortable with the process. Work with a lawyer that uses simple language and avoids jargon.
Conflict avoidance
A good family lawyer will put your interests first and create an agreement that minimises the potential for disputes. They will approach negotiations fairly and professionally so the terms are balanced and work for both parties.
What can be included in a BFA
A BFA can cover:
- Division of assets (e.g. property, bank accounts, investments).
- Allocation of liabilities (e.g. mortgages, loans, credit card debt).
- Superannuation entitlements.
- Spousal maintenance.
- Ownership of specific items (e.g. cars, furniture, personal items).
Risks
Coercion or duress
Coercion or duress occurs when one party is pressured, intimidated or forced into signing a BFA against their will. In family law, one party is often at a financial disadvantage in the relationship. This pressure may include threats of withholding financial support, emotional manipulation or setting unrealistic deadlines to sign the agreement. To be fair, both parties must have time and opportunity to get independent legal advice and consider the agreement carefully.
Non-disclosure
Non-disclosure completely undermines the fairness and validity of a binding financial agreements guide. This occurs when one party deliberately hides or misrepresents their financial situation, for example, not disclosing assets, understating income or concealing debts. Examples include hidden bank accounts, secret investments or undervalued properties.
Non-disclosure not only puts the agreement at risk of being unenforceable but also can result in significant financial loss to the disadvantaged party if the true financial position only comes to light after the agreement is signed. Both parties must disclose fully to ensure fairness. This helps withstand legal challenge.
Asset manipulation
There are many ways that a party can manipulate assets and liabilities for their own gain
Non-Disclosure of Assets
One party may not disclose the full extent of their assets or income when entering into a binding financial agreements guide. This could include:
- Hiding bank accounts.
- Hiding investments.
- Hiding assets in someone else’s name.
Transferring Assets to Third Parties
A party may transfer ownership of assets to friends, family or trusts to conceal them from the financial settlement. This may include:
- Transferring property or funds into a relative’s name.
- Setting up a trust or company to hold assets that were originally owned by the individual.
Undervaluing Assets
Parties may undervalue their assets, for example, business interests, real estate or collections of high-value items to make it seem like they have less assets than they do. They may seek biased valuations for exotic assets to distort their value.
Creating Fake Debts
Fake debts offset the value of assets. This may involve:
- Manufacturing loans or obligations to reduce the net worth.
- Creating fake invoices or business expenses to reduce the asset pool.
Selling Assets
Parties may sell valuable assets (art, cars, jewellery) before the agreement is signed to reduce the asset pool. This may include:
- Selling property at a discount.
- Liquidating investments or assets just before signing the agreement.
Dissipating assets
A party may deliberately waste money. Liquidating assets and spending the earnings on frivolous purchases can prevent the other party from receiving their entitlement. This can include:
- Excessive gambling.
- Taking luxurious holidays before entering the agreement.
Protections
Forensic accountant
A forensic accountant can be engaged to investigate a party’s financial affairs if there is suspicion of hidden assets. They will review bank statements, transactions, business records and other financial documents to identify any assets that may have been hidden or manipulated.
Forensic accountants are experts in identifying patterns of asset dissipation, undervaluation or unusual transactions that may indicate fraudulent behaviour.
Freeze accounts
If you have a joint account with your ex you can freeze the account. You can freeze an account by contacting the bank and asking for a change of status. You don’t need permission from the other account holder to do so.
Social media
People divulge a lot on social media. They may not mean to. But some people can’t help showing off. Suppose your former partner is saying they have no money. Then they go on social media and post about their latest fancy holiday. These social media posts show that they’re lying about their financial position and bleeding the asset pool. You think that’s farfetched? Why would anyone do something so silly? You’d be surprised.
Consequences
Parties that are found to have acted inappropriately will face consequences. The consequence depends on each situation.
Adjustment
The Court can make an adjustment to compensate the aggrieved party. The offending party can also be subjected to an ‘add-back’ provision if they depleted assets. The Court values the depleted assets. This lost value is deducted from the respondent’s share.
Loss of credibility
Loss of credibility severely impacts a party’s ability to argue their case. Once the Court finds that you acted unconscionably, you’re unlikely to have any favourable judgments.
Legal costs
Wrongful conduct during a financial agreement can lead to a costs order. The respondent covers their former partner’s legal expenses.
Reversing a BFA
There are particular grounds that allow a party to challenge a BFA.
Fraud
Fraud occurs when one party intentionally provides false or misleading information or conceals significant financial information during the creation of the binding financial agreements guide. Fraud can totally destroy the fairness and integrity of a BFA. If fraud is discovered, the court can set aside the agreement and the offending party can face legal and financial penalties.
Lack of independent legal advice
Parties must receive independent legal advice when negotiating a Binding Financial Agreements guide. The agreement won’t hold up in court if this advice wasn’t received. A party may also argue that the advice was inadequate. This may be difficult to prove. It’s important to maintain communication records and an accurate timeline of events.
Unconscionable conduct
This covers any attempts by a party to exert pressure on their spouse to enter the agreement. A spouse can be put under duress through physical or financial threats. For example, threatening to cut off a spouse’s access to finances would qualify as unconscionable conduct.
Change of circumstances
A party’s financial circumstances are expected to change over time. A BFA is unlikely to be able to anticipate these changes. If the change is significant, the agreement may be set aside. A party must show that the agreement’s terms have become so impractical as to cause undue hardship. This is often the result of the birth of children.
Benefits and drawbacks
Flexibility
BFAs can be entered into during or after a relationship. You don’t need to wait for separation. The agreement doesn’t have to meet the Court’s criteria. The Family Court has strict provisions that determine a settlement’s fairness. This allows the parties to tailor the terms based on their own priorities.
Cost
Preparing a BFA can be expensive due to the legal expertise required. Each party will need to engage an independent family lawyer and the process involves detailed financial analysis, negotiation and drafting to ensure the agreement is robust and enforceable. Additional costs can arise if there are complex asset structures or if disputes emerge during the negotiation process. While these upfront costs can be significant, they are often outweighed by the long term savings in avoiding costly litigation if the relationship breaks down.
Legal risk
BFAs can be challenged in Family Court if they don’t meet the legal requirements or if fraud, coercion or non-disclosure is proven. The complexity of a BFA means even small mistakes create legal risks. That’s why it’s essential to ensure the BFA is thoroughly prepared and reviewed by experienced lawyers to reduce risk.
Overturning a BFA
- See a Lawyer: Discuss the grounds to challenge the BFA with a family lawyer. Your lawyer will help you work out if you have a good case.
- File an Application: If your lawyer determines you have a reason to challenge the BFA, an application needs to be filed with the Court. The application will ask the Court to set aside the agreement.
- Proof: You will need to provide proof to support your claim that the agreement should be set aside, for example evidence of duress, lack of legal advice or financial misrepresentation.
- Court Hearing: The court considers the application. Both parties present their case. They can offer evidence and supporting witnesses.
- Outcome: If the Court will set the agreement aside or uphold it.
Binding Financial Agreements are great legal tools for managing financial relationships. They offer flexibility, transparency and efficiency. By getting through the complexity of BFAs, parties can protect themselves and build a solid foundation for financial arrangements in the event of the relationship breaking down. While there are risks, you can avoid pitfalls with sensible planning.
Peter Andrews was so helpful resolving an odd property dispute with an ex partner. He listened without judgement and acted quickly to resolve the matter, I honestly could not have copied without him, an absolute godsend!! Thank you Peter!
- Lauren Myslinski
See us today for financial advice.