Binding Financial Agreement
What is a Binding Financial Agreement?
Binding Financial Agreements (“BFA”) can be categorised as agreements between parties to a relationship concerning how the ‘asset pool’ is to be divided in the event of a breakdown of the relationship.
BFA’s can be entered into by married or de facto couples and can be entered into before, during or after the end of the relationship and can also provide for superannuation and any entitlement to spousal maintenance.
In order for the agreements to be binding on the parties, the requirements of section 90G(1) (for agreements made before, during or after marriage) and section 90UJ(1) (for agreements made before, during or after de facto relationships) of the Act must be met:
a) that there be a signed agreement;
b) that before signing the agreement the parties receive the legal advice required by the Act;
c) that either before or after the signing of the Agreement each party’s legal practitioner provide a statement to that party that the requisite advice has been given;
ca) that each party’s legal practitioner provide to the other party a copy of the statement referred to above;
d) that the agreement has not been terminated or set aside by the Court.
When drafting BFA’s it is mandatory that these requirements are met, or the parties risk being unable to enforce the agreement, having it set aside by the Court and then having the ordinary provisions of the Family Law Act 1975 apply in dividing the property.
The Family Law Court website has the following to say on the issue of BFA's and Consent Orders:
The following is a selection of recent cases that highlight the importance of ensuring the requirements for BFA’s are met, and of getting sound legal advice about the nature and effect of the BFA.
Hoult v Hoult  FamCA 1023
In this case, Murphy J granted the wife’s application for a declaration that a section 90B financial agreement, that is, an agreement made before marriage, made in 2004 was not binding on the basis that she had not been provided with the requisite legal advice. While the provisions of the Act which applied at that time differ slightly to now, legal advice was still required to be given and this case highlights the importance of making a record of the advice provided. Murphy J found that the wife’s solicitor’s recall of the advice given was ‘significantly impaired in respect of important aspects of the matter’.
While not prescribing what record of advice should be made, Murphy J did suggest that a comprehensive file note or contemporaneous letter of advice would be prudent. The wife further claimed that the fact that she had not been provided with a comprehensive list of assets and liabilities was evidence of the lack of advice, however His Honour was not persuaded by this and did not consider this was indicative of the advice having not been given. The husband argued that the wife’s solicitor’s certificate of advice could be relied upon as evidence that the requirements had been met, however, His Honour said that that presumption was no more than a rebuttable presumption of fact. His Honour held the agreement was not binding.
Sullivan v Sullivan  Fam CA 752
The husband applied for the rectification of an error in a financial agreement. The agreement stated that it was an agreement pursuant to section 90B (pre marriage) when in fact it should have been section 90C (during marriage). The wife opposed the application. She had signed the agreement two days before the wedding, while the husband signed it three days after the wedding. This case highlights the importance of the fact that the parties must be in agreement. Both certificates of independent legal advice referred to “the agreement proposed to be entered into” by the parties. Ultimately, Young J found that it was not apparent that there was a common intention to enter into an agreement under section 90C. Furthermore, the equitable remedy of rectification was not available to parties who had not reach a concluded agreement, nor was there a ‘common mistake’ and therefore no common intention which could give rise to rectification. His Honour held that the agreement could not be rectified to be an ‘agreement’ or ‘financial agreement’ under either section 90C or section 90B.
Omar v Bilal  FMCAfam 143
A wife brought an application to set aside a section 90C financial agreement essentially on the basis that she had not been provided with the requisite advice that she was able to understand. The solicitor had referred the wife to an Arabic translator with a view to that translator explaining the Agreement. The Court held that in circumstances where the solicitor was not present when the interpreter explained the effect of the Agreement and that there was no statement or certification to say that the Agreement had been explained to the wife in a language she could understand, the requirements of section 90G could be said to have been satisfied. The Agreement was set aside.
Sanger  FamCAFC 210
Pursuant to a financial agreement, the husband was to pay the wife $350,000. The husband didn’t pay so the wife sought to enforce the agreement. The husband sought an order setting aside the agreement on the grounds that a subsequent sale of properties (intended to fund the payment) at below their value resulted in the husband not receiving a 40% share of the net assets as agreed.
In fact, the terms of the agreement reflected a different agreement. In the event that the husband was unable to pay the $350,000, the husband personally covenanted to pay the wife the shortfall. If the fund exceeded $350,000, the husband was to keep the excess. The Court found that it was clear from the agreement that the parties had each accepted the risks of the agreement. In respect of whether or not the personal covenant by the husband to pay the wife gave rise to an impracticable agreement, the Court said that the BFA created, and the wife accepted, an unsecured contingent entitlement for which she had to sue to husband and that this was not fatal to the agreement. The Court affirmed that the provisions of section 90K, which set out in what circumstances a Court may set aside an agreement, do not allow a party to escape a ‘bad bargain’.
There are significant costs involved in the drafting and signing of BFA's as opposed to Consent Orders, given the risks associated with the document. These costs arise from (but are not limited to):
- Ensuring the client knows and is fully aware of the implications, advantages, disadvantages and risks associated with the agreement;
- Drafting file notes and all correspondence for all matters relevant to the creation and implementation of the document; and
- Other legal costs as they may arise in accordance with our Costs Agreement and Disclosure Agreement.
If you would like to discuss your circumstances and whether you require a BFA or alternatively Consent Orders, please contact our office on 02 6882 3133 and make an appointment, where we would be happy to discuss the issues with you.