What Is A Binding Financial Agreement?

A Binding Financial Agreement (BFA) is designed to provide certainty and security in financial matters, helping couples plan for the future with clarity and confidence. The BFA outlines the division of assets and liabilities in the event of separation. This document can be made at any time, including before entering into a marriage or de facto relationship, during, or after it ends whether through divorce or separation.

But the issue does arise, what happens if one party refuses to abide by a binding financial agreement? 

Navigating the enforcement of a BFA can be confusing due to the legal challenges involved. So having a clear understanding of the legal framework is essential to ensure compliance and best protect each party's financial interests

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Legal Significance of Binding Financial Agreements

A BFA provides strict guidelines by outlining financial responsibilities and protecting individuals from contentious legal battles in the event of separation. 

This agreement is governed by Sections 90B-90G of the Family Law Act 1975 (Cth) for married couples and Sections 90UA-90UN for de facto relationships, which sets out the statutory requirements to ensure the document's validity and enforceability.

If clear guidelines aren’t established, these disagreements could lead to lengthy and costly legal battles in the future. As such, having this agreement can provide certainty and protect both parties from potential disputes down the line.

What Makes It Legally Binding?

1. A BFA must be a written document that is signed by both parties.

2. The BFA must properly identify the type of relationship the parties had and the section of the Family Law Act 1975 [Cth] under which it is drafted.

3. Each party is required to get independent legal advice before signing the agreement. This helps,
   1. Ensure that both parties fully understand their rights and obligations under the agreement.
   2. Provide clarity regarding the advantages and potential disadvantages of entering into the agreement.

4. It is only enforceable if each party has received independent legal advice from a qualified lawyer. There must be a signed certificate from each party’s lawyer that must confirm that each individual was informed of their rights and cover the advantages, disadvantages, and implications of the agreement.

5. It must be signed freely and voluntarily, without there being evidence of coercion or outside pressure.

6. Both parties must ensure that they fully disclose all assets and liabilities going into the agreement. If even one party fails to do so, it can lead to future disputes or being nullified altogether.

If these criteria are not met, the courts can state that the document is not enforceable. In addition to this, if there is a significant change in circumstances, the Court may also see fit to set aside the agreement

What Can a BFA Be Challenged?

Under Section 90K(1)(d) of the Family Law Act 1975 (Cth), a Court may set aside the agreement if an unforeseen event causes undue hardship. Examples include:

• Illness or disability that significantly alters one party’s financial position.
• Birth of a child, where the primary caregiver is financially disadvantaged.
• Economic downturn or redundancy, leading to a substantial loss of income.

In the case of these events, a Court may reconsider the fairness of the agreement and make moves to amend it.

Case law precedent: In Thorne v Kennedy (2017), the High Court of Australia set aside a BFA due to procedural unfairness and significant power imbalance between the husband and wife, reaffirming the principle that agreements must be just and equitable at the time of enforcement.

When Can It Be Enforced?

In the event of a dispute, it is important to know the rights and obligations when trying to enforce the agreement.

Before taking legal action, using direct communication or a professional mediation service may be the best course of action. In some cases, misunderstandings or temporary financial difficulties may underlay the reasons for non-compliance and a simple mediated conversation can often lead to a resolution without involving the Courts.

If this does not work, it may be recommended to apply to the Family Court or Federal Circuit Court to enforce the agreement. They will then examine the validity of the document and may issue orders to ensure compliance.

This course of action can result in various Court orders:

• Directing the non-compliant party to transfer assets as agreed.
• Awarding financial compensation for non-compliance.
• Imposing penalties or costs on the party refusing to comply.

How To Ensure The BFA Binding

A Binding Financial Agreement is an essential tool for safeguarding financial interests in a relationship. However, its enforceability depends on strict compliance with legal requirements and good faith execution by both parties.

To prevent any disputes, 

• Consider seeking legal advice from qualified family law practitioners to ensure that it complies with all legal requirements.
• Make sure to maintain records of all communications, financial disclosures, and legal consultations related to the document.
• Review the agreement to keep it fair and relevant by making any necessary amendments in the case of marriage, children, or career shifts that can impact financial circumstances. 

Ensuring that a Binding Financial Agreement is legally compliant and enforceable requires expert legal guidance. If the statutory requirements aren’t met, it may result in the document being challenged or set aside, potentially leading to costly litigation.

At Hillcrest Family Lawyers, we specialise in drafting, reviewing, and enforcing Binding Financial Agreements in accordance with Australian Family Law legislation and judicial precedents. Contact us today for legal advice to safeguard your financial interest.