Separation or divorce can be a challenging time, both emotionally and financially. One way to provide certainty and clarity is through a binding financial agreement (BFA).
In Australia, a binding financial agreement is a legal document that outlines how assets, debts, and financial resources will be divided between parties if the relationship ends.
Knowing when to get a binding financial agreement can help you protect your interests, plan ahead, and avoid disputes in the future.
When To Get A Binding Financial Agreement In Australia
A binding financial agreement can be used by couples in de facto relationships, married couples, and even before a relationship begins. Essentially, it is a tool to outline how finances will be handled, including property division, spousal maintenance, and financial responsibilities, should the relationship break down in the future.
While there is no one-size-fits-all approach, there are several common situations where people may consider getting a binding financial agreement in Australia.
It’s important to note that these are general examples only and do not constitute legal advice. Every situation is unique, and consulting a family lawyer in your state is the best way to determine what is legally appropriate for your circumstances.
You Want To Keep Your Finances Separate
For some couples, keeping finances separate is a priority from the start. This might be the case for partners who each have their own assets, income streams, or financial obligations and want to ensure that these remain protected in the event of separation. A binding financial agreement allows you to formally agree on the division of property, assets, and debts, preventing misunderstandings or disputes later.
Even if you share some joint expenses, having a clear agreement in place can provide peace of mind. It can specify which assets are considered individual, which debts are personal, and how any joint assets will be divided if the relationship ends. A BFA can also be tailored to address how you will manage your finances during the relationship, offering flexibility and clarity.
Although many couples informally agree to keep finances separate, a binding financial agreement gives these arrangements legal recognition. This reduces the risk of future disputes and ensures that both parties have a clear understanding of their financial responsibilities and entitlements. It is worth discussing your individual circumstances with a trusted family lawyer to ensure the agreement is appropriately structured and legally enforceable.
You Own A Business
Business owners have unique financial considerations when it comes to relationships. A business may be a significant asset, and its value can fluctuate over time. If you own a business, a binding financial agreement can help protect your ownership interests and clearly outline what would happen to the business in the event of a separation.
Without a BFA, a business could potentially be treated as a shared asset, which might result in complex disputes or even affect the operational stability of the company. The agreement can specify whether the business remains solely owned by one party, whether it will be sold, or how any increase in its value during the relationship will be handled.
It’s important to work with professionals, including accountants and family lawyers, to accurately assess the value of the business and ensure the agreement reflects your intentions. This is especially crucial if there are employees, partners, or investors involved, as the financial arrangement could impact them.
While the idea of a binding financial agreement may seem formal or unnecessary at first, it can ultimately save time, stress, and money by preventing lengthy legal disputes over complex business assets.
One Party Has More Assets Than The Other
In some relationships, one person may have accumulated significantly more assets than the other at the start of the relationship. This could include property, savings, investments, or other valuable resources. In these situations, a binding financial agreement can help protect the financial interests of both parties while clearly outlining expectations around asset division.
A BFA can be used to define which assets remain separate and which are considered joint. It can also clarify how future increases in the value of these existing assets are handled. This can prevent disputes that often arise when one party feels they contributed more financially to shared assets or when there are differences in earning capacity.
While some may assume that the law will automatically divide assets fairly, “fair” does not always mean equal, and court proceedings can be lengthy and expensive. By having a binding financial agreement in place, couples can create a tailored solution that reflects their specific circumstances and intentions. It provides certainty for both parties and can reduce conflict in what might otherwise be a difficult period.
One Party Has More Debts Than The Other
Debt can be just as important to manage as assets in a relationship. If one party has significant personal debts, a binding financial agreement can clarify responsibility for those debts and protect the other party from being held liable for them in the future.
Without an agreement, creditors may attempt to recover debts from shared assets, or disputes may arise if the couple separates. A BFA can outline which debts are considered individual, how joint debts are to be handled, and who is responsible for ongoing financial obligations. This can be particularly relevant if one partner has a mortgage, personal loans, or business-related debts that could impact shared finances.
By addressing debts upfront in a binding financial agreement, both parties can enter the relationship or continue their partnership with clarity and confidence. It reduces the risk of misunderstandings or disputes in the future, helping to maintain a fair and transparent financial arrangement.
You Have Children From A Previous Relationship
Blended families often come with more complex financial arrangements. If either party has children from a previous relationship, a binding financial agreement can outline how financial resources will be divided without impacting obligations to those children.
For example, a BFA can help ensure that assets intended for children from a previous relationship are protected and not inadvertently considered joint property. It can also clarify how new financial commitments or responsibilities will be managed, balancing the needs of both families.
While the agreement cannot dictate parenting arrangements or child support obligations, it can provide clarity around the division of property and financial resources. This can prevent conflicts and ensure that the financial security of all children involved is maintained. Consulting a family lawyer experienced in complex family arrangements is essential to ensure that your agreement appropriately addresses your specific needs.
You May Receive A Future Financial Gift Or Inheritance
Inheritances or anticipated financial gifts can have a significant impact on your overall financial position. A binding financial agreement can protect these assets, ensuring that they remain separate from joint property and are not considered in the division of assets upon separation.
This is particularly relevant if one party is set to receive a substantial inheritance or gift that could alter the balance of financial resources within the relationship. By clearly documenting intentions in a BFA, both parties can agree on how these funds or assets will be treated.
Such an agreement can provide certainty and avoid potential disputes in the future. Without a binding financial agreement, there may be ambiguity about how inherited assets are handled, potentially leading to legal complications. Our team of family lawyers in Perth can assist in drafting a BFA that anticipates future financial changes and protects your interests.
You Want To Avoid Going Through The Court If You Separate Later
Court proceedings can be stressful, time-consuming, and expensive. Many couples choose a binding financial agreement to minimise the need for court involvement should the relationship end. A BFA allows parties to agree on the division of assets, liabilities, and financial arrangements in advance, reducing the likelihood of legal disputes.
By setting clear expectations, a binding financial agreement can save significant time and expense, while also providing emotional relief during an already challenging period. It also allows couples to create tailored arrangements that suit their unique circumstances, rather than relying on standard court determinations.
While some couples may feel that court proceedings are inevitable, a well-drafted BFA can provide a legally enforceable roadmap for separation, giving both parties certainty and clarity. Consulting a family lawyer ensures the agreement is valid, comprehensive, and protects the interests of both parties.
A binding financial agreement can provide clarity, security, and peace of mind for couples at any stage of a relationship. While not every couple requires one, there are several situations where having a BFA in place can be particularly beneficial.
If you are considering a binding financial agreement, speaking to experienced family lawyers in Perth is a smart first step. You can start with a free 15-minute, no-obligation information call to understand your options and how a binding financial agreement might work for your situation.
