What Can Be Included In a Financial Agreement

A binding financial agreement (BFA) is a legal document that sets out how the assets and liabilities of a couple will be divided in the event of a separation or divorce. A BFA can be made before, during or after a marriage or de facto relationship, and can cover various aspects of the parties’ financial affairs, such as property, superannuation, spousal maintenance, debts and inheritances.

A BFA can provide certainty, clarity and peace of mind for both parties, as well as avoid the time, cost and stress of going to court. However, a BFA must meet certain legal requirements to be valid and enforceable, and it is highly recommended to seek professional legal advice before entering into one.

In this article, we will discuss some of the main things that you should consider and include in your BFA, as well as some of the benefits and risks of making one.

Why make a BFA?

There are many reasons why a couple may choose to make a BFA, such as:

• To protect their individual assets and interests, especially if they have significant or complex financial affairs, such as businesses, trusts, investments or overseas assets.
• To preserve their pre-existing or future inheritances, gifts or windfalls for themselves or their children from a previous relationship.
• To avoid or limit the scope of spousal maintenance claims, which may otherwise arise if one party is unable to support themselves financially after the separation or divorce.
• To have more control and flexibility over how their assets and liabilities will be divided, rather than leaving it to the discretion of the court, which may not reflect their wishes or expectations.
• To reduce the potential for conflict and litigation, which can be emotionally and financially draining for both parties and their children.

What to include in a BFA?

A BFA can cover any matter relating to the property, financial resources or maintenance of either or both of the parties, as long as it is not contrary to public policy or the best interests of any children involved. Some of the common things that a BFA may include are:

• The identification and valuation of the parties’ assets and liabilities, both joint and separate, at the time of making the agreement and at the time of separation or divorce.
• The division and distribution of the parties’ assets and liabilities, including how they will be transferred, sold, retained or dealt with in any other way.
• The allocation and adjustment of the parties’ superannuation interests, which may involve splitting, flagging or preserving them.
• The provision or waiver of spousal maintenance, either on a periodic or lump sum basis, or subject to certain conditions or events.
• The responsibility and payment of any joint or individual debts, such as mortgages, loans, credit cards or tax liabilities.
• The management and control of any joint or individual assets and liabilities.

How to make a valid and enforceable BFA?

A BFA must comply with the relevant legislation and formalities to be legally binding and effective. Some of the key requirements are:

• The agreement must be in writing and signed by both parties.
• The agreement must be made with the full and informed consent of both parties, without any fraud, duress, undue influence, mistake or unconscionable conduct.
• The agreement must be fair and reasonable, and not result in any injustice or hardship to either party or any children involved.
• The agreement must be accompanied by a certificate from a qualified lawyer, stating that each party has received independent legal advice on the effect and implications of the agreement, and that their rights and obligations have been explained to them.
• The agreement must be properly executed and witnessed, and a copy must be given to each party.

What are the benefits and risks of making a BFA?

A BFA can have many advantages and disadvantages, depending on the circumstances and preferences of each party. Some of the potential benefits and risks are:

• A BFA can provide certainty, clarity and peace of mind for both parties, as they can decide how their assets and liabilities will be divided in advance, and avoid any disputes or surprises in the future⁵.
• A BFA can protect the parties’ individual assets and interests, especially if they have significant or complex financial affairs, or if they want to preserve their pre-existing or future inheritances, gifts or windfalls for themselves or their children from a previous relationship⁹.
• A BFA can avoid or limit the scope of spousal maintenance claims, which can be costly and uncertain, and may affect the parties’ financial independence and security¹¹.
• A BFA can save the parties time, money and stress, as they can avoid the lengthy, expensive and adversarial process of going to court, and minimise the impact of the separation or divorce on themselves and their children⁵.
• A BFA can also have some drawbacks and challenges, such as:
• A BFA can be difficult and complex to draft, as it requires a thorough and accurate assessment of the parties’ assets and liabilities, both present and future, and a careful consideration of the possible scenarios and outcomes that may arise in the event of a separation or divorce.
• A BFA can be risky and uncertain, as it may not reflect the parties’ changing circumstances, needs and expectations over time, and it may not be able to accommodate any unforeseen events or contingencies that may occur in the future.
• A BFA can be invalid and unenforceable, if it does not meet the legal requirements and formalities, or if it is challenged or set aside by the court on certain grounds, such as fraud, duress, undue influence, mistake, unconscionable conduct, or significant change in circumstances.
• A BFA can also have some emotional and relational implications, such as:
• A BFA can be seen as a sign of mistrust, pessimism or lack of commitment, as it may imply that the parties are anticipating or preparing for a separation or divorce, rather than focusing on the success and longevity of their relationship.
• The management and control of any joint or individual businesses, trusts, investments or other financial ventures.

How to make a valid and enforceable BFA?

A BFA must comply with the relevant legislation and formalities to be legally binding and effective. Some of the key requirements are:

• The agreement must be in writing and signed by both parties.
• The agreement must be made with the full and informed consent of both parties, without any fraud, duress, undue influence, mistake or unconscionable conduct.
• The agreement must be fair and reasonable, and not result in any injustice or hardship to either party or any children involved.
• The agreement must be accompanied by a certificate from a qualified lawyer, stating that each party has received independent legal advice on the effect and implications of the agreement, and that their rights and obligations have been explained to them.
• The agreement must be properly executed and witnessed, and a copy must be given to each party.

What are the Benefits and Risks of a BFA?

A BFA can have many advantages and disadvantages, depending on the circumstances and preferences of each party. Some of the potential benefits and risks are:

• A BFA can provide certainty, clarity and peace of mind for both parties, as they can decide how their assets and liabilities will be divided in advance, and avoid any disputes or surprises in the future.
• A BFA can protect the parties’ individual assets and interests, especially if they have significant or complex financial affairs, or if they want to preserve their pre-existing or future inheritances, gifts or windfalls for themselves or their children from a previous relationship.
• A BFA can avoid or limit the scope of spousal maintenance claims, which can be costly and uncertain, and may affect the parties’ financial independence and security.
• A BFA can save the parties time, money and stress, as they can avoid the lengthy, expensive and adversarial process of going to court, and minimise the impact of the separation or divorce on themselves and their children.
• A BFA can also have some drawbacks and challenges, such as:
• A BFA can be difficult and complex to draft, as it requires a thorough and accurate assessment of the parties’ assets and liabilities, both present and future, and a careful consideration of the possible scenarios and outcomes that may arise in the event of a separation or divorce.
• A BFA can be risky and uncertain, as it may not reflect the parties’ changing circumstances, needs and expectations over time, and it may not be able to accommodate any unforeseen events or contingencies that may occur in the future.
• A BFA can be invalid and unenforceable, if it does not meet the legal requirements and formalities, or if it is challenged or set aside by the court on certain grounds, such as fraud, duress, undue influence, mistake, unconscionable conduct, or significant change in circumstances.
• A BFA can also have some emotional and relational implications, such as:
• A BFA can be seen as a sign of mistrust, pessimism or lack of commitment, as it may imply that the parties are anticipating or preparing for a separation or divorce, rather than focusing on the success and longevity of their relationship.
• A BFA can create tension and resentment, as it may involve difficult and sensitive discussions and negotiations, and it may reveal or create conflicts or disparities between the parties’ financial situations, expectations and contributions.

Conclusion

A BFA is a legal document that sets out how the assets and liabilities of a couple will be divided in the event of a separation or divorce. A BFA can be made before, during or after a marriage or de facto relationship, and can cover various aspects of the parties’ financial affairs, such as property, superannuation, spousal maintenance, debts and inheritances.

A BFA can have many benefits and risks, depending on the circumstances and preferences of each party. A BFA can provide certainty, clarity and peace of mind, as well as protect the parties’ individual assets and interests, avoid or limit spousal maintenance claims, and save time, money and stress. However, a BFA can also be difficult and complex to draft, risky and uncertain to rely on, invalid and unenforceable in some cases, and emotionally and relationally challenging to make.

Therefore, it is important to consider and include all the relevant factors and information in your BFA, and to seek professional legal advice before entering into one. A BFA is a serious and binding legal document, and it should not be made lightly or hastily. A BFA should reflect the parties’ mutual understanding, agreement and respect, and it should serve their best interests and welfare, both individually and collectively.