BINDING FINANCIAL AGREEMENT
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Binding Financial Agreements in Australia
Are you in need of a binding financial agreement (BFA)? Are you in a de facto relationship or considering a new marriage? You may have heard a BFA be referred to as a pre-nuptial agreement (prenup) or a property agreement. The BFA is designed to capture a record of what each party brought into the relationship and to form an agreement that they will leave with at least as much, if not more, than what they brought into the relationship. No one wants to consider what it will be like if their relationship ends or they suffer a relationship breakdown but it is necessary to consider what financial position you may be left in.
Binding Financial Agreements (BFA’s) Before Marriage and Their Validity (Pre-nuptual Agreement)
In order for a BFA to be valid, an agreement must be made in writing and it must be signed by both parties. As an added layer of protection, you should have a lawyer draft the agreement and witness your and your partners signature.
The Family Law Act 1975 (Cth), sets out a list of requirements that must be satisfied before an agreement will be considered binding. The most important of those considerations is that both parties have received independent legal advice as to their rights and obligations. A certificate of advice should be annexed to the agreement. The following are the criteria that must be satisfied for the agreement to be binding:
- The parties are either contemplating entering a marriage or de facto relationship, are in a de facto relationship or marriage, have separated or divorced; and
- The agreement must include a statement from each party as to the agreement, providing that before the agreement was signed the party obtained independent legal advice on their rights, obligations and the advantages and disadvantages of making the agreement;
- Either before or after signing the agreement, each party must be provided with a signed statement from a legal practitioner which certifies the advice with respect to the parties rights and advantages and disadvantages in entering the financial agreement was given; and
- A copy of the legal practitioner’s statement is given to the other party or a legal practitioner of the other party; and
- The agreement has not been terminated and has not been set aside by a court; and
- Includes a separation declaration unless the agreement is signed post-divorce.
What Area of Law Does This Fall Under?
Financial agreements of this nature are considered a family law matter and are subject to being dealt with by either the Family Court or the Federal Circuit Court in the event a legal adjudicator is required. A legal adjudicator is usually only required in the following circumstances;
- The agreement needs to be set aside;
- One party is not complying with the agreement;
- The agreement is being contested; or
- The agreement needs assistance for execution.
The agreement will be reflected by either consent orders (meaning both parties consented to the agreement) or by way of court orders (by which the court has made the final determination). There is a common saying between lawyer and judges that if the matter has to progress to court then there is an expectation that neither party will leave happy. This is because both parties will be required to make concessions or sacrifices.
Both parties can also agree to a termination agreement by consent whereby they mutually agree to cease the BFA.
Binding Financial Agreements During Marriage and Their Impacts on Divorce
A binding financial agreement can be difficult to enforce following a divorce because the parties property could have substantially changed during the marriage and some of the property may have ceased to exist (i.e. a home the wife owned prior to the relationship but has since been sold and proceeds applied to the marriage). If the property contained in the BFA does not actually exist anymore then it is difficult for the BFA to be executed.
One of the biggest impacts a BFA can have on the property is that of inherited property or money which the family intends to remain with their direct descendant. For example, the husbands family leaves him a property that he obtained prior to the marriage and the BFA provides that upon any divorce or separation, he is to keep that property so that it stays within the family. In these circumstances, it is easier to comply with the BFA.
In some circumstances, people will review their binding financial agreement throughout their marriage and create post-nuptial agreements. This is a protective method of ensuring that if a separation or divorce occurs, the split can be amicable and everything can be easily divided.
One important consideration that many married couples consider (and de facto couples) is that of spousal maintenance. Spousal maintenance refers to the amount a spouse may be paid weekly, after separation, because they either cannot or do not earn enough to be able to maintain their lifestyle following separation. This is a complicated area but in some circumstances, people can decide in their BFA what amount they have already agreed on and then that rate is what they aid after separation regardless. Of course, this does not take into the fact that people’s circumstances can change and that when separation occurs, the rate decided may not be sufficient. This is particularly relevant if either spouse develops any medical conditions or disabilities which require additional funds for medical expenses.
How is a BFA different to a property settlement?
A property settlement is a compilation and then a division of assets and liabilities of the marriage or relationship commonly referred to as a division of property. A property settlement will consider all property acquired during the relationship which would not have been encompassed in the original agreement.
A property settlement or financial settlement requires full and frank disclosure by both parties of all financial documents, inclusive of superannuation. A property settlement can often have provisions for child support if the parties are considering a private agreement instead of an assessed agreement through the child support agency.
A property settlement may involve dispute resolution so that an agreement can be reached quickly and efficiently. Dispute resolution refers to a mediation type process where both parties and their legal representatives, meet with an accredited mediator to try and divide their property without involving litigation. If an agreement is reached it can be reflected by consent orders so that the agreement is considered binding.
When dealing with a property settlement, superannuation is dealt with in a slightly different way to the rest of the assets of your relationship. Firstly, it must be determined how much, if not all, of the superannuation, is to be included as an asset. This is particularly relevant for people who may have had shorter relationships or people who had superannuation before their relationship began. In those circumstances, the super will only be considered a partial asset and only the amount accrued during the relationship will be considered.
This is easily worked out by looking at statements from when the relationship began and deducting the total from them to find out what portion is being applied as a relationship asset.
There will then need to be formulas applied to determine what percentage of the superannuation each party is entitled to but a lawyer can easily assist with this. When considering what type of lawyer is best for this task, you should look to a law firm that specialises in family law and engage a family lawyer to assist you.
What if I have children with my former partner?
If you and your former partner have children then you will also need to discuss parenting arrangements in addition to financial matters. If the relationship breaks then the financial and parenting matters will need to be considered separately as one does not automatically affect the other. You should always seek legal advice when considering children’s matters as there are several variables that need to be considered.
Frequently Asked Questions.
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Because we understand how far the impacts of such situations can go in the memories of children, we work rapidly and efficiently to establish protective measures against children’s trauma and minimize time spent in a children’s court. You and your children are fully protected with us!
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