‘Pre-Nups’ or Binding Financial Agreements: Out of favour for property settlement?
A Binding Financial Agreement (BFA) is the Australian term for the type of agreement frequently known as a ‘pre-nup’ or pre-nuptial agreement.
Parties who wish to make plans for their division of property at the end of a relationship may look to make a BFA at the start of the relationship. However, there are several reasons why this decision may not be suitable.
BFA’s must be compared against the other type of agreement which is used to settle division of property, ‘Consent Orders’ which are filed with the Court and have very strict requirements for their preparation and execution. BFA’s, comparatively, do not need to be submitted to the Court, which can mean that they are simpler and cheaper to prepare. However, BFAs are considerably more fallible. There are a number of circumstances in which a BFA can fail to operate completely or be set aside:
The BFA wasn’t binding to begin with
If a BFA was not validly created, or not lawfully entered into, then it logically cannot be enforced. If the BFA is not compliant with the relevant legislation, primarily the Family Law Act 1975 (Cth), then it may (likely) not be binding. There are several requirements for a BFA to be valid, including that both parties must sign and also provide a certificate from a legal practitioner stating that they received independent legal advice.
The BFA ought to be set aside
There are a number of reasons a validly-executed BFA might be set aside. This article does not aim to be conclusive, but some of the more common reasons include:
- The BFA was obtained fraudulently. For example, a party might have (accidentally or deliberately) misrepresented their financial position or not disclosed certain assets or liabilities;
- The BFA was entered into to attempt to defraud a creditor (say by transferring property or assets to a spouse to attempt to put those assets out of reach of a trustee in bankruptcy);
- The BFA was obtained under duress, undue influence or due to unconscionable conduct. A BFA can be set aside where one party threatened the other into signing it, or where one party has otherwise taken unfairly advantage of the other due to reasons including (but not limited to) language barriers, difference in literacy or education, intoxication, disability or other impairments.
- The BFA is poorly-drafted, ambiguous, or incomplete in such a way that it is impractical for the parties to understand it or carry it out.
A BFA may even be set aside simply on the grounds that it is impractical to carry out, or if the circumstances of the parties have changed significantly since the making of the BFA – for example, if one party has sole care of the children of a relationship whereas previously care of the children was split. A BFA may also be set aside if one party is in significant financial hardship.
The Courts have an overarching discretion to set aside a BFA if it is ‘just and equitable’ to do so having regard to all the circumstances surrounding the relationship and the making of the BFA.
All of the above does not mean that BFA’s are an ineffective tool. However, for the purposes of property settlement, it is important to be aware of the above information and the situations in which a BFA may be set aside. A BFA that was otherwise validly executed and fair and reasonable which was entered into at the start of a long marriage may no longer be fair and reasonable to enforce at the end of a marriage – which is quite frequently the case if children have been born during the course of the marriage.
Of note is that BFAs cannot be ‘updated’. To change a BFA, it must first be terminated and then a new BFA entered into.
As such, we generally recommend that parties seeking property settlement look to file consent orders with the Family Court. For more information on consent orders, see some of our other articles.
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