A Binding Financial Agreement (BFA), often called a pre-nup, is a written document setting out how a couple (married or de facto) will share their financial resources in the event of a relationship breakdown. As the name indicates, a BFA is only able to cover financial matters. Therefore, your BFA is limited to covering how you will split property, assets and liabilities, how finances will be managed (eg who will pay the mortgage, utilities etc), and payment of spousal support. Let’s take a look at the key elements your BFA should contain.
What should be included in a Binding Financial Agreement?
Firstly, certain basic information is included in the agreement, such as the names, birthdates and addresses of the parties involved and the date the agreement is made. The agreement will also briefly detail when the relationship started, when you began living together (if you have) and when you intend to marry (if you do).
Next, the agreement will include details of each party’s assets and liabilities. Both of you will provide the following information, ideally with estimated or formal values:
- A list of assets in your name name or held on your behalf as well as their value (this can include any property, cash in bank accounts, share portfolios, vehicles, interests in trusts and companies and the like);
- A list of all your liabilities/debts and their extent;
- Each of your superannuation entitlements;
- Your financial resources and their value (for example, income, details of whether you are a beneficiary of a discretionary family trust, and so on.)
Then, the agreement will specify how the assets and liabilities are to be divided if the relationship ends, as well as any other relevant terms and conditions. Some of the things you will need to think about including are listed below. However, everyone’s circumstances are different so your BFA will be unique in terms of the provisions it contains. Always disclose all your financial circumstances to your family lawyer when drafting a BFA in order to obtain the right advice.
Your BFA should deal with what will happen to any joint property if separation occurs. This might include specifying which party will remain in the home and which party will move out and how any disagreements about how can stay in the house will be resolved; who will be responsible for outgoings of the property after separation; a valuation of the real property to determine fair market value; how net proceeds of a sale will be distributed (for example, in accordance with legal ownership or a specified percentage).
Excluding your separate property
You may want to exclude each party’s separate property. Specify exactly what this relates to—for example, pre-relationship assets and liabilities, property that was acquired in substitution for a pre-relationship asset, gifts and inheritances received during the relationship, and property acquired in a party’s sole name after the BFA was signed.
If there are any anticipated inheritances for the parties, you should explain what is to occur to the inheritances: will the parties be precluded from having an interest in any inheritance the other party receives?
Make sure to include clauses relating to how each party’s superannuation will be handled in the event of a split.
Will any spousal support be paid? How will it be calculated? If no spousal maintenance is to be paid, ensure this is made very clear—don’t just leave out any mention of spousal maintenance, because then it can be regarded as not being covered by the BFA, leaving it open for a party to ask a court to make a decision on it.
If spousal support is to be paid, the agreement must also specify further details as per section 90E of the Act, including a dollar amount. You can append a table or formula setting out how the spousal support will be calculated.
If one party is to make a cash payment to the other party should there be a separation, then the amount of that payment or the formula for its calculation should be included. Sometimes, people opt to implement a sliding scale for any cash payments to a party, which can increase depending on, for example, how many years of marriage or whether children are born. Include any conditions around such a payment, for example if it is to be paid at a particular time after separation.
“Binding” and not risking being “set aside”
Two important things to be aware of when it comes to drafting a Binding Financial Agreement is that firstly, it needs to be binding in accordance with section 90G (for married parties) or section 90UJ (for de facto couples) of the Family Law Act 1975 (the Act). Secondly, it needs to be drafted in such a way that it doesn’t risk being set aside by a court if later challenged by a party. The relevant sections of the Act that apply here are section 90K (for married parties) or section 90UM (for de facto couples) of the Act.
Your lawyer will ensure that these elements are satisfied, but briefly: for a BFA to be binding, it needs to follow certain rules. Both parties must have received independent legal advice (and the agreement must include a statement to that effect) and the agreement must be signed by all parties.
Then, in order to avoid risking being set aside, the content of the agreement must also be free from errors, it must not have been produced through something like undue influence or duress (aka “ink on the wedding dress”), and it must not have been obtained by fraud. This latter aspect is very important to note, because “fraud”, in this context, includes the non-disclosure of a material matter.
The importance of disclosure
Full and frank disclosure is very important in Australia’s family law system and there are penalties for non-disclosure as well as filing false undertakings in the courts.
It is just as important when it comes to Binding Financial Agreements. As such, you must disclose to each other all your financial resources including assets, income, and other financial interests. You must also disclose all your liabilities including debts and expenses.
Sometimes parties opt to only list their assets and financial interests without providing actual values or estimates, nor provide financial documents that would allow the other party to obtain independent valuations of such assets or interests. If taking that path, it’s a good idea to include a clause that specifies that parties acknowledge that their respective financial positions have been disclosed to their satisfaction.
Ultimately, the more you disclose about your financial circumstances, the less you risk having your BFA set aside due to non-disclosure of a material matter.
Foreseeable future events
A BFA can potentially also be set aside if circumstances have changed such that enforcing the original agreement is impracticable. This means that to avoid your agreement being set aside, you need to ensure it covers foreseeable future events, such as the birth of children, which may effect the proposed division of assets. Another potential contingency, for example, is specifying what should happen if an asset that is mentioned in the agreement is sold.
Finally, ensure you keep all documentation relating to value of assets and liabilities, such as written and dated real estate appraisals, bank statements, superannuation statements and the like. You will need these not only during the drafting process but also longer term, if there is a need to prove aspects of the financial situation if there is any dispute over the BFA in future.
If you would like any legal advice in relation to a Binding Financial Agreement, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.
Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.
You may also like to read our blog: Have you considered a collaborative pre-nup?