In Australia, financial agreements, commonly known as binding financial agreements (BFAs), are formulated in divorce and separation cases. These agreements help to clarify how assets will be divided between the parties and the responsibilities of each spouse to provide financial support. However, it’s important to note that not all financial agreements are legally enforceable. This article will explore the factors that make a BFA legally binding and provide clarity on the conditions required for it to be enforced under Australian law.
What Are Binding Financial Agreements?
A BFA is a legal document that outlines how assets and liabilities are to be divided between two parties in the event of a relationship breakdown. While these agreements are typically agreed upon before or during a relationship, they can also be signed after a separation or divorce, provided that everything has been agreed upon in a fair way. In a BFA, both parties agree on the division of their property and financial interests.
It is recommended to have a BFA in place because they provide clarity and can be used to prevent a lengthy and costly litigation process, allowing parties to settle their financial affairs privately. However, the court can render the agreement invalid in court in some circumstances.
Key Conditions for Enforceability
A BFA must comply with several conditions for it to be deemed valid. These requirements are set out in the Family Law Act 1975, which governs legislation pertaining to familial rights and responsibilities in Australia. The following requirements must be met for a BFA to be legally binding:
- Provide a Written Agreement: The terms and conditions must be made available in writing. An oral agreement or a verbal understanding between the parties is not sufficient because it could be disputed by a party member with a vengeance. The financial agreement must be formalised in writing and signed by both parties. This document serves as the proof of the parties’ intentions and is essential evidence to present to the family court.
- Seek Independent Legal Advice: Each party must seek advice from a solicitor who isn’t counseling the other party before signing the BFA. Independent legal advice helps to protect both parties from making decisions without a full understanding of the consequences. It also ensures that neither party is under undue influence or pressure when entering into the agreement. If either party fails to receive independent legal advice, the BFA may be rendered null and void.
- Obtain Formal Certificate of Legal Advice: After each party has received legal advice, the lawyer must provide a certificate confirming that they spoke to their client. This certificate must be attached to the BFA and must include details of the legal advice that was provided. Without this certificate, the agreement cannot be deemed binding. The certificate demonstrates that each party was informed of their legal rights and responsibilities, and it acts as a safeguard against claims that the agreement was signed under duress, lack of understanding, or misinformation.
- Confirm that the Agreement Was Signed Without Duress: Both parties must have signed the agreement voluntarily. If a party can prove that they were pressured or influenced to sign the agreement, it may be rejected in the family court. Duress could involve situations where one party was threatened, intimidated, or coerced into signing the agreement. Undue influence occurs when one party uses their power or authority to manipulate the other party into agreeing to terms that they would not otherwise accept. For an agreement to be enforceable, both parties must act freely and willingly. Courts will closely scrutinise the circumstances under which the agreement was signed to determine whether either party was subjected to coercion or manipulation by the other.
- Offer Full Disclosure of Assets or Liabilities: Both parties must account for all their valuables and debts. This is necessary to ensure that they enter into the agreement with a clear understanding of each other’s financial positions. If it is discovered that one party failed to disclose significant assets, debts, or income, the court may decide to invalidate the agreement, especially if the non-disclosure affects the outcome.
- Protect the Rights of Any Children: While a BFA can govern the division of assets and spousal support, it cannot interfere with the rights of children, particularly regarding child custody or support. Any provision in a financial agreement that doesn’t adhere to the rights of children under Australian family law will not be valid. In other words, a BFA cannot dictate matters related to child support or parenting arrangements, as the law pertaining to childcare is sacrosanct.
- Don’t Alter or Cancel the Agreement Without Consent: Once a BFA has been signed and deemed valid, it cannot be changed or withdrawn without the written consent of both parties. The agreement may be rendered unenforceable if either party does not agree to change it.
Enforcing a Binding Financial Agreement
If a BFA meets all the necessary conditions, it is enforceable in the Family Court of Australia. If one party refuses to comply with the terms of the agreement, the other party can take legal action to make them adhere to it.
In some cases, parties may need to apply for a court order to enforce the BFA. If the court determines that the agreement is valid, it can force each party to comply with the conditions set out in it. However, if the agreement fails to meet the necessary requirements for enforceability, the court may reject it, and the parties will need to resolve their financial matters another way, such as by going to court or through mediation.
A BFA can help protect both parties in the event of separation or divorce proceedings. However, for a BFA to be legally binding, it must meet several conditions. It has to be written with the advice of a solicitor, be created with the best interests of any children or dependants in mind, and disclose all assets and liabilities.
Entering a BFA is an important decision, and it is essential to meet all legal requirements so it can be legally enforceable. By seeking professional legal advice and ensuring that the agreement is properly written, couples can protect their financial future and avoid unnecessary disputes in the event of a relationship breakdown.
At Dam Lawyers, our experienced team can provide you with tailored legal advice to help you navigate the complexities of BFAs and ensure that your financial arrangements are legally sound and enforceable. Contact us today to schedule a consultation.
