Are you entering a marriage or de facto relationship and want to protect your assets in the event of separation or divorce? A Binding Financial Agreement (BFA), commonly known as a prenup, can help provide certainty and financial protection.
Financial Agreements, commonly known as BFA’s / prenups, are legal contracts often used before or during a de facto relationship or marriage to set out how assets will be divided in the event that the relationship ends. These contracts are covered under section 90B to 90KA of the Family Law Act 1975. These financial agreements are a private agreement of the parties’ rights.
WHEN ARE BINDING FINANCIAL AGREEMENTS USED?
Financial agreements are typically made between two spouses before de facto, during de facto, before marriage, during marriage, or as a result of a marriage breakdown or divorce. These agreements are also made before and during de facto relationships.
ARE BINDING FINANCIAL AGREEMENTS LEGALLY BINDING IN AUSTRALIA?
BFAs will be legally binding on both parties only if both receive independent legal advice prior to signing, and strict drafting criteria is followed. This ensures that both parties understand what they are signing and how this can affect them in the future. BFAs are typically complex and contain sensitive issues such as love, family, and money. These points of sensitivity require careful consideration and expert legal advice.
If there is a dispute about whether the agreement is legally binding, the Federal Circuit and Family Court can make orders to determine whether the agreement is valid and enforceable, or alternatively that the agreement be set aside.
WHAT CAN A BINDING FINANCIAL AGREEMENT PROTECT?
PROTECTS INHERITANCES
BFAs often include this provision, which excludes claims relating to inherited assets from entering the asset pool upon separation. Generally, when creating a BFA before marriage, parties define the past or present inheritances as “separate property” to be retained by that party in the event of a breakdown of their relationship. This exclusion is binding on the parties involved.
PROTECTING FAMILY WEALTH ACROSS GENERATIONS
A BFA’s utility extends to a role in managing and protecting family wealth across generations. In an era where intergenerational wealth transfer is becoming increasingly significant, a BFA offers a strategic tool to safeguard assets among family members. Today, many Australian partners, alongside their parents, are putting BFA’s in place to secure the family wealth. It ensures, in the event of divorce, that the family’s financial contributions are protected and clearly defined as a sole asset to be retained by that party (and therefore remain in the family).
BYPASSES STANDARD LEGAL RULES FOR DIVIDING PROPERTY
In the event of separation or divorce, a BFA allows parties to contract out of the standard legal principles ordinarily applied by the Court when determining a property settlement. Absent a BFA, the Court generally applies a four-step process to determine whether a proposed division of property is just and equitable (fair). This process involves: identifying and valuing the parties’ asset pool; assessing the financial and non-financial contributions made by each party; considering future needs factors such as income disparity, care of children, and health; and finally determining whether the overall outcome is just and equitable in all the circumstances.
A BFA enables parties to customise how their property and financial resources will be dealt with in the event of separation. For example, parties may agree that assets owned prior to the relationship remain the sole property of that party and are excluded from division. BFAs are also particularly useful in blended families, second or subsequent relationships, or where one or both parties have significant personal or family wealth. Specific clauses can be included to protect inheritances, businesses, or pre-existing assets, while also ensuring that children from previous relationships are adequately provided for alongside the interests of the current partner.
HOW DO I TALK TO MY PARTNER ABOUT A BINDING FINANCIAL AGREEMENT?
- Raise the topic with your partner before marriage or formally commencing a de facto relationship (or living together) and have an open discussion where you both address your concerns. This open communication from the start can allow for a BFA to be made before marriage, which can alleviate potential disputes in the future.
- Raise the topic with your partner during the relationship or marriage. This option is difficult, but could be more appropriate depending on the circumstances.
HOW DO I TALK TO MY CHILDREN ABOUT A BINDING FINANCIAL AGREEMENT?
- Raise the topic with your child prior to them entering into any relationship, so that they understand from an early age the expectations of their parents.
- Raise the topic directly with your child, and possibly with their partner, after the child enters the relationship. Some parents may be reluctant to do so because it may cause unease within the family, in which case discussing this before a relationship can avoid these conversations.
- Insert a non-binding provision in your will that would explain your wish to benefit lineal descendants. Additionally, request each beneficiary to have a BFA with their partner to remove inheritances from any property dispute in the future. This step can make it easier to approach your children about a BFA, as it is a conversation starter and can demonstrate to them that it is important to you. While this is not binding, it shows the intention of how family wealth is intended to be managed.
HOW WE CAN HELP
If you need support or advice on Binding Financial Agreements (prenups) before your relationship or marriage, please contact our experienced family law specialists at Ramsden Family Law. We are available to provide you with the necessary legal support and guidance to protect your best interests during this time.
The content of this article is intended to provide general guidance on the subject matter and must not be relied on as legal advice. Specific advice should be sought about your specific circumstances.
