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 Family Law Act provides for parties to a marriage or de facto relationship to enter into a binding legal agreement about the financial arrangements should their marriage or de facto relationship break down. Sometimes people know these agreements as 'prenuptial agreements' but the legal term is 'financial agreements'.

Sections 90B-90KA of the Family Law Act deal with financial agreements by parties to a marriage. Sections 90UA-90UN apply to financial agreements by de facto couples. The Act only provides for financial agreements between de facto couples if the parties to the relationship were ordinarily resident in New South Wales, Victoria, Queensland, South Australia, Tasmania, the Australian Capital Territory, the Northern Territory or Norfolk Island when the agreement was made.

You can make a financial agreement before, during or after a marriage or de facto relationship. These agreements can cover:

1.         Financial settlement (including superannuation entitlements) after the breakdown of a marriage or a de facto relationship

2.         Financial support (maintenance) of one spouse by the other after the breakdown of a marriage or a de facto relationship,

3.         Any incidental issues.

For a financial agreement to be legally binding, you must both have:

1.         signed the agreement, and

2.         received independent legal and financial advice before signing.

Can a financial agreement be set aside?

A court can declare the agreement invalid, and set it aside. The situations in which that is possible are provided at Section 90K (married couples) and Section 90UM (de facto couples) of the Family Law Act.

What are consent orders?

A consent order is a written agreement that is approved by a court. Signing draft consent orders means you agree with the orders and will follow the terms stated in the document. When the consent order is made, it has the same effect as a court order made by a judicial officer after a court hearing.

You and your former partner can apply for consent orders to be made without going to court.

Using the Family Court's Application for Consent Orders kit, you ask the Family Court to make consent orders in the terms of your agreement. Consent orders about property and financial orders may deal with:

1.         transfer or sale of property

2.         splitting of superannuation,

3.         maintenance.

Consent orders cannot be made about:

  1. property and spousal maintenance between de facto couples that do not meet the criteria set out in the Family Law Act. If you have been in a de facto relationship and are considering making an application to the Family Court or Federal Circuit Court for financial orders you should read the New de facto property regime page on the Attorney Generals website. This page will give you information about whether or not you are eligible to apply to the Family Court or Federal Circuit Court.

  2. A child support departure application. This requires application to the Court or in some circumstances a child support agreement. This can be a complex area of law and you should obtain legal advice or contact the Child Support Agency on 131 272 before making an application. For more information visit the Child Support Agency website ( www.csa.gov.au ).

Once you have completed the Application for Consent Orders, file it by post or in person with the family law registry nearest you. There is no need for you to attend court.

Before applying for consent orders, you should consider obtaining legal advice about the effect of any proposed consent orders. Before making the consent orders a court will need to be satisfied that the orders are properly drafted and that the terms of the agreement are "just and equitable".

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 [2011] 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 [2011] 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 [2011] 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 [2011] 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):

  1. Ensuring the client knows and is fully aware of the implications, advantages, disadvantages and risks associated with the agreement;
  2. Drafting  file notes and all correspondence for all matters relevant to the creation and implementation of the document; and
  3. 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.