What are the legal requirements for a binding financial agreement?
A binding financial agreement (BFA) offers couples a way to privately arrange their financial affairs without court involvement. These legal documents provide clarity and certainty during significant relationship transitions, but they must meet strict requirements to be enforceable. Seeking advice from experienced family lawyers on the Gold Coast can help ensure your agreement withstands legal scrutiny.
Key Takeaways
- BFAs must be in writing, signed by both parties, and include certificates of independent legal advice
- Full financial disclosure is mandatory for a valid agreement
- Both parties must enter into the agreement voluntarily without duress or undue influence
- BFAs can be set aside if they don’t meet strict legal requirements or contain procedural flaws
- Regular reviews and updates are recommended following major life events
What is a binding financial agreement (BFA)?
Definition and purpose
A binding financial agreement is a legally recognised private contract between couples that outlines how financial matters and property will be handled during their relationship or following separation. Unlike court orders, BFAs allow parties to determine their own financial arrangements without judicial intervention. They provide greater certainty than informal arrangements and can save significant time, emotional stress and legal costs if a relationship ends.
When BFAs are used
Binding financial agreements can be created at three distinct relationship stages:
- Before marriage or de facto relationship (pre-nuptial agreements)
- During the relationship (mid-relationship agreements)
- After separation (separation agreements)
These agreements typically address property division, spousal maintenance, superannuation splitting, and how to handle future acquisitions or inheritances.
Who can make a BFA and applicable law
Eligible parties
In Australia, binding financial agreements can be made between:
- Married couples
- De facto couples (including same-sex relationships)
- People intending to marry or enter a de facto relationship
All parties must be over 18 years of age and possess the mental capacity to understand the nature and effect of the agreement they’re entering.
Relevant legislation
BFAs for married couples are governed by sections 90B-90KA of the Family Law Act 1975 (Cth), while de facto couples’ agreements fall under sections 90UB-90UN of the same Act. These sections outline the requirements for creating legally binding agreements and the circumstances in which they may be set aside.
“The strict requirements for binding financial agreements aren’t arbitrary – they protect both parties by ensuring informed consent and proper consideration of the agreement’s implications.” – Advance Family Law
Core legal formal requirements for a valid BFA
Written agreement and signatures
The law requires that a BFA must be in writing and signed by both parties. While witnessing isn’t mandatory under the Family Law Act, having signatures witnessed is good practice to prevent later disputes about authenticity. The agreement should be properly dated, and each page should be initialled to prevent unauthorised alterations.
Independent legal advice and certificate
Both parties must receive independent legal advice before signing. This advice must cover:
- The effect of the agreement on their rights
- The advantages and disadvantages of entering the agreement
- Whether the agreement is fair and reasonable in the circumstances
Each lawyer must provide a signed certificate confirming they’ve given this advice, and these certificates must be attached to the agreement.
Full and frank financial disclosure
All parties must make complete and honest disclosure of their financial position, including:
- Assets and liabilities
- Income and financial resources
- Superannuation entitlements
- Interests in trusts or companies
- Potential inheritances or gifts
Failing to disclose significant assets or providing misleading information can render an agreement unenforceable.
Capacity and voluntariness
Each party must have the mental capacity to understand the agreement and enter into it freely. Agreements obtained through duress, undue influence, unconscionable conduct or fraud are vulnerable to being set aside by a court. This includes situations where a party felt pressured to sign due to emotional manipulation or threats.
What should be included in the agreement text
Core clauses
A properly drafted BFA should contain:
- Clear identification of both parties
- Recitals explaining the context and intention of the agreement
- Detailed schedules listing all assets, liabilities and superannuation
- Specific provisions for property division and any maintenance arrangements
- Clauses addressing how the agreement can be terminated or varied
Optional provisions to consider
Depending on individual circumstances, you might include provisions covering:
- Sunset clauses that set an expiry date for the agreement
- Review triggers for major life events like having children
- Treatment of future inheritances or windfalls
- Tax implications and stamp duty considerations
- Dispute resolution mechanisms
Limits on content
BFAs cannot include provisions about parenting arrangements or override statutory child support obligations. The Family Law Act specifically excludes these matters from financial agreements, and any such provisions will be unenforceable.
Common reasons courts set aside BFAs
Defective execution or missing certificate
Courts frequently invalidate agreements due to technical defects such as:
- Missing or incomplete certificates of independent legal advice
- Improper signing or dating
- Substantial changes made after legal advice was provided
Non-disclosure and misinformation
Failure to make full and frank disclosure is a common basis for setting aside BFAs. This includes deliberate hiding of assets, providing misleading valuations, or omitting relevant financial information that would have affected the other party’s decision to enter the agreement.
Duress, undue influence or unconscionability
Courts may invalidate agreements where one party was pressured or unfairly influenced. Examples include presenting an agreement shortly before a wedding with an ultimatum, taking advantage of a party’s vulnerability, or creating circumstances where genuine consent was impossible.
Preparing a valid BFA: practical checklist
Pre-drafting steps
- Compile comprehensive financial documents including bank statements, property valuations, and tax returns
- Obtain superannuation statements and trust documents
- Consider your objectives and what you hope to achieve with the agreement
- Allow sufficient time – rushing increases the risk of errors
Drafting and review
Work with specialist family lawyers experienced in BFAs. Ensure all financial information is accurately recorded in schedules, and carefully review the agreement before obtaining independent legal advice.
Signing steps
Arrange for each party to meet separately with their own lawyer, sign all copies with appropriate witnesses, attach signed certificates of independent legal advice, and store original documents securely with copies for each party and their lawyers.
When to review or vary a BFA
Binding financial agreements should be reviewed following major life events such as:
- Birth of children
- Significant changes in financial circumstances
- Receipt of substantial inheritance
- Major health issues
- Relocation interstate or overseas
Any changes to the agreement must follow the same formal requirements as the original BFA.
Alternatives to BFAs
Consent orders
Unlike BFAs, consent orders are approved by the court and have the same effect as court orders. They offer greater certainty as they’ve received judicial approval, but require disclosure to the court and must be considered ‘just and equitable’.
Court proceedings and mediation
For couples who cannot reach agreement, family dispute resolution and mediation provide structured negotiation environments. If these fail, court proceedings may be necessary, though they typically involve greater cost, time and stress.
Creating a binding financial agreement requires attention to detail and strict compliance with legal formalities. When properly prepared, these agreements provide valuable certainty and protection for both parties. Advance Family Law specialises in drafting legally sound binding financial agreements tailored to your specific circumstances and can guide you through the process to help safeguard your financial future.
