A Binding Financial Agreement (BFA) is the Australian equivalent of a prenup. It is used to agree in advance on how a couple’s property and other assets would be distributed should their marriage or de facto relationship break down. The Agreement can cover financial settlement, spousal maintenance and any other incidental issues.
BFA’s can be entered into at any stage of a relationship, i.e. before, during or after a marriage or de facto relationship. Couples may consider entering into a BFA if one party has more property, assets or is expected to receive an inheritance at a later stage.
Some benefits of entering a Binding Financial Agreement include:
- Establishing a level of reassurance if one or both partners has been through a separation or divorce before.
- Protecting some or all of the assets from each party.
- Being able to specify the ground rules when it comes to how the couple will acquire property, who will pay the bills, and where weekly wages or income will be saved.
- Preserve family or other businesses for future generations.
Properly drafted and executed BFA’s are particularly beneficial for those who want to establish a level of reassurance that there would be a harmonious division of property and assets in the circumstance of separation or divorce without the need for stressful court action. A BFA can also make both parties feel secure knowing that any property or assets accumulated before their relationship or marriage is safe.
Couples should also be aware, however, that there can be some risks and downsides to entering a BFA. They include:
- Legal fees for drafting the agreement.
- Content of the agreement may be complicated.
- Use of the agreement could be unfair to one half of the couple.
Couples also need to ensure that the BFA is in fact binding. Both parties must sign the BFA and receive independent legal and financial advice before doing so. It is also worthwhile to evaluate the potential effects of the BFA on the relationship, especially if it is considered unfair to one half of the couple.