Understanding Binding Financial Agreements: A Comprehensive Guide for Couples

A Binding Financial Agreement (BFA) allows couples to determine in advance how their property will be divided if their relationship ends. Without one, property settlement is governed by the discretionary framework set out in the Family Law Act.

As discussed in this episode of Explain That by Velocity Legal, Binding Financial Agreements are now a staple of modern family law practice. They are commonly referred to as “prenups”, although they can be entered into before, during or after a marriage or de facto relationship.

The appeal is certainty; the risk lies in enforceability.

What Is a Binding Financial Agreement?

A Binding Financial Agreement is a private contract between parties that sets out how assets will be divided upon separation.

If no agreement exists, property settlement will be determined under the Family Law Act. That framework considers contributions, future needs and what is just and equitable. It is inherently discretionary.

A financial agreement shifts that discretion back to the parties. It allows them to decide:

·      What property remains separate

·      What property is treated as joint

·      How jointly owned assets are divided

·      Whether entitlements change over time

Importantly agreements can be entered into:

·      Before a relationship or marriage

·      During the relationship

·      After separation

This flexibility makes them relevant not only for first marriages, but also second marriages, blended families and de facto relationships.

Are Binding Financial Agreements Enforceable?

The short answer discussed in the episode is yes - provided they are properly prepared and no vitiating factors arise.

However, financial agreements can be set aside in certain circumstances. The Family Law Act imports principles of contract law and equity into their enforceability.

Grounds discussed in the episode include:

·      Uncertainty in drafting

·      Impracticality or frustration where circumstances make performance impossible

·      Fraud or non-disclosure of material assets

·      Intention to defeat creditors

·      Duress or unconscionable conduct

·      Material change in circumstances relating to a child

The key point is that enforceability depends heavily on drafting quality, full disclosure and proper process.

 Duress and Timing Before a Wedding

One of the most commonly misunderstood issues is timing.

Providing a financial agreement shortly before a wedding can create risk. Timing alone does not automatically invalidate an agreement, but it may contribute to allegations of duress.

The episode discusses how duress is assessed in context. Factors may include:

·      Financial disparity between parties

·      Language barriers

·      Dependence on one party

·      External pressure, including the social consequences of cancelling a wedding

The lesson is procedural discipline. Agreements should not be rushed. Each party must have adequate time and independent legal advice.

 Common Structures: Joint and Separate Property

The most common structure discussed is the joint and separate property model:

·      Property held in one party’s name remains theirs

·      Joint property is divided according to an agreed formula

Some agreements incorporate:

·      Contribution-based models

·      Sliding scales that adjust entitlements overtime

·      Increased entitlements where one party leaves the workforce to care for children

·      Adjustments depending on relationship duration

These structures allow flexibility but require careful drafting to avoid future uncertainty.

 Protecting Inheritance and Family Wealth

For clients with expected inheritances, family trusts or intergenerational wealth, Binding Financial Agreements are often the most direct method of protection.

The episode highlights the difficulty of relying on informal “loan” arrangements with family members. Such arrangements frequently become disputed in court.

A financial agreement:

·      Documents the parties’ intention at the time

·      Confirms both parties understand and accept the treatment of inherited assets

·      Provides a legally enforceable framework

Timing matters. Protecting an inheritance early is typically more straightforward than attempting to quarantine assets years into a relationship.

The Process: How Long Does It Take?

Although a financial agreement can technically be drafted quickly, the discussion emphasises that it should not be rushed.

Best practice involves:

·      Drafting and revision

·      Time for review and consideration

·      Independent legal advice for both parties

·      Opportunity to negotiate terms

Allowing sufficient time reduces the risk of later allegations of pressure or misunderstanding.

The Risk of Online Templates

Online templates and do-it-yourself agreements present significant risk.

Common problems include:

·      Failure to properly identify assets

·      Incorrect ownership descriptions

·      Inconsistent or conflicting clauses

·      Inadequate disclosure

Given independent legal advice is a statutory requirement, attempting to shortcut the process often results in higher cost and greater vulnerability later.

Cost Comparison: Prevention Versus Litigation

One of the clearest points in the episode is the cost differential.

A Binding Financial Agreement typically costs a fraction of contested family law proceedings. By contrast, litigation involves hearings, negotiations and potentially trial - with highly variable and often substantial cost.

For many clients, the agreement is not simply an asset protection tool. It is a litigation avoidance strategy for both parties.

 Practical Takeaways

Based on the discussion, key considerations include:

·      Decide early whether asset protection is a priority

·      Do not rush the drafting process

·      Ensure full and accurate disclosure

·      Avoid signing under time pressure

·      Consider sliding scale or child-related adjustments where appropriate

·      Treat inheritance and family wealth proactively

·      Engage experienced family law practitioners
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Watch or listen to the full podcast below and for tailored advice on preparing a sound Binding Finanical Agreement contact Thomas Jenkins from our Family Law Team here.