Binding financial agreements (BFAs) can be a powerful tool for protecting assets of the parties to a relationship, including assets held in a discretionary trust, in the event of a relationship breakdown.
BFAs are a tool created by the Family Law Act which allow parties (whether married or not) to agree the manner in which their financial assets should be divided upon separation.
They are also commonly used to outline the manner in which each spouse intends to divide their assets upon death, to counter any claim by the surviving spouse against their estate.
The key requirements for a BFA to be valid include:
- The agreement must be signed by both parties
- Each party must receive independent legal advice and the agreement must contain a certificate to that effect by the respective lawyers
- Both parties must provide full disclosure in relation to their financial affairs to the other party
The requirement to provide full disclosure can be problematic in circumstances where one party has significant wealth which is unknown to the other party.
In addition, there have been a number of high-profile cases recently in which relatively minor administrative oversights have resulted in BFAs being invalid.
These include:
- Fevia & Carmel-Fevia [2009] FamCA 816, where a BFA was held to be invalid over concerns about whether an annexure incorporating details of the husband’s assets was correctly included in the version of the BFA signed by the wife
- Purdey v Millington [2018] FCC 213, where a BFA was held to be invalid because the wife successfully established that she did not receive independent legal advice, despite a solicitor signing the independent advice certificate in the agreement
As a result of these cases, there is an increasing level of scepticism by clients towards the enforceability of any BFA they may sign and also a reluctance by many legal practitioners to expose themselves to the risk of assisting clients with the drafting an advice required to implement a BFA.
For further information, please contact Patrick Ellwood on 0400 503 111 or patrick@cloverlaw.com.au.
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