Creating a binding financial agreement can be a wise decision for couples looking to clearly define their financial arrangements and protect their assets. Yet, many agreements fail when challenged because they don’t meet legal requirements. Consulting with financial agreement lawyers in Melbourne early in the process can help avoid costly mistakes. This article outlines the essential steps to make your binding financial agreement legally sound under Australian family law.

Key Takeaways

• Both parties must receive independent legal advice with signed certificates from their lawyers
• Complete and honest financial disclosure is mandatory for a valid agreement
• Clear, precise drafting that addresses future scenarios strengthens enforceability
• Proper execution and documentation help defend against future challenges
• The absence of duress, undue influence or fraud is essential for validity

What Is A Binding Financial Agreement?

A Binding Financial Agreement (BFA) is a legally recognised contract between couples that outlines how their assets, financial resources and liabilities will be divided if their relationship breaks down. Under the Family Law Act 1975 (Cth), BFAs can be made by married couples, de facto couples (including same-sex couples), and couples who have separated.

BFAs can be created at different stages:

• Before marriage or cohabitation (prenuptial agreements)
• During a relationship
• After separation
• After divorce

These agreements typically cover property division, superannuation splits, spousal maintenance, and allocation of financial liabilities – effectively creating a customised property settlement that bypasses the Family Court process.

Core Legal Requirements For Validity

For a BFA to be legally enforceable in Australia, it must meet several strict requirements:

The agreement must be in writing and signed by both parties. Verbal agreements hold no weight under the Family Law Act, regardless of witnesses.

Each party must receive independent legal advice about the advantages and disadvantages of the agreement, and how it affects their rights. Their respective lawyers must provide signed certificates confirming this advice was given.

Full and frank disclosure of all financial matters is mandatory. This includes assets, liabilities, income sources, superannuation, and potential inheritances. Hiding assets or providing misleading information can invalidate the entire agreement.

Both parties must enter into the agreement voluntarily, without coercion, duress or undue influence. Evidence of pressure tactics or threats can lead courts to set aside the agreement.

“The strongest binding financial agreements are those where both parties have genuinely negotiated terms, received quality legal advice, and allowed sufficient time for consideration before signing.” – Testart Family Lawyers

Practical Pre-Signing Checklist

Before finalising your BFA, complete this practical checklist to minimise the risk of future challenges:

Prepare comprehensive financial disclosure documentation including bank statements, property valuations, business interests, tax returns, superannuation statements, and details of any trusts or complex financial structures.

Allow adequate time (weeks, not days) for both parties to receive proper independent legal advice and reflect on the implications of the agreement.

Exchange signed solicitor certificates and keep originals and copies in a secure location.

Use clear schedules and dated valuations for major assets, and consider having independent valuations for significant items.

Maintain records of all communications, draft versions and the negotiation process to demonstrate good faith and absence of pressure.

Common Reasons Courts Set Aside BFAs

Australian courts may invalidate binding financial agreements for several reasons:

Technical defects in the execution process, such as missing or defective certificates of independent legal advice, can render the agreement unenforceable.

Non-disclosure or misrepresentation of financial circumstances is a frequent basis for challenge. Courts expect complete honesty between parties.

Evidence of undue influence, unconscionable conduct or duress during the agreement process will typically invalidate the BFA.

Material changes in circumstances, particularly those affecting children of the relationship, may lead courts to set aside agreements that have become inequitable.

Fraud, mistake, lack of capacity, or illegal terms within the agreement can also serve as grounds for invalidation.

Drafting Tips For Enforceable Clauses

Effective drafting significantly impacts enforceability. Consider these guidelines:

Use precise language and clearly defined terms. Ambiguity creates opportunities for disputes and challenges.

Include separate, dated schedules for assets, liabilities and superannuation with sources for valuations.

Address future scenarios such as inheritance, business growth, asset acquisition, and changes in financial status.

Detail dispute resolution procedures to be followed before court proceedings, such as mediation requirements.

Consider the impact of maintenance waivers and include appropriate fallback provisions if primary clauses are challenged.

Include mechanisms for amendment, termination, confidentiality, and cost allocation in case of disputes.

Role Of Legal Advisers

Legal advisers play a critical role in creating enforceable BFAs:

Independent legal advice must be substantive and thorough, covering the effects of the agreement on rights, advantages, disadvantages, and whether terms are fair and reasonable.

Lawyers should review all financial disclosures, question inconsistencies, and advise clients about potentially unfair terms or omissions.

Choose a solicitor who specialises in family law and has specific experience with binding financial agreements – general practitioners may miss critical technical requirements.

Consider seeking specialist valuations for complex assets such as businesses, trusts, or unusual investments to strengthen the agreement’s foundation.

Conclusion

Creating a legally enforceable binding financial agreement requires meticulous attention to legal requirements, thorough financial disclosure, and proper independent legal advice. While no agreement is completely challenge-proof, following the steps outlined in this article significantly increases the likelihood your agreement will withstand scrutiny. Remember that cutting corners during the creation process often leads to agreements that fail when tested. Testart Family Lawyers recommends consulting with experienced family law specialists early in your planning process to establish a solid foundation for your binding financial agreement.