Binding Financial Agreements (BFAs) are an essential tool for couples looking to protect their assets and establish financial certainty in their relationship. However, many Australians make critical errors when creating these agreements, potentially rendering them invalid or unenforceable. Understanding these common pitfalls can help you ensure your agreement stands up to legal scrutiny if challenged in the future.
Critical Mistakes When Creating a Binding Financial Agreement
Creating a legally sound Binding Financial Agreement requires careful attention to detail and adherence to specific legal requirements.
Here are the most common mistakes people make when establishing these agreements in Australia:
Inadequate Independent Legal Advice
One of the most significant errors is failing to obtain proper independent legal advice. Section 90G of the Family Law Act explicitly requires that each party must receive independent legal advice about the effect of the agreement on their rights and the advantages and disadvantages of making the agreement. This advice must come from separate lawyers who have no connection to each other or to the other party.
Many couples mistakenly believe they can save money by sharing a lawyer or by having one party’s lawyer briefly speak with the other party. This approach almost certainly invalidates the agreement. Each party must receive thorough advice from their own solicitor, who must then provide a certificate confirming this advice was given.
Incomplete or Inaccurate Financial Disclosure
Failing to fully disclose all assets, liabilities, financial resources, and potential inheritances is another common mistake. A BFA requires complete transparency between parties. If one party later discovers that significant assets were concealed or undervalued, they may have grounds to challenge the agreement’s validity.
Financial disclosure should be comprehensive and include all current assets and liabilities, superannuation interests, trust interests, expected inheritances, and business interests. Each asset should be properly valued, potentially with professional valuations for significant or complex assets like businesses or investment properties.
Remember that disclosure requirements extend beyond merely listing assets – you must provide accurate values and supporting documentation. Courts have set aside agreements where parties have failed to make full and frank disclosure of their financial circumstances.
Improper Execution of the Agreement
Many BFAs fail because they aren’t executed correctly. The Family Law Act requires specific formalities for execution, including that the agreement must be signed by both parties and that the original agreement (not copies) must be given to one party and a copy to the other.
The timing of signatures is also crucial. Both parties must sign the agreement, and the certificates of independent legal advice must be attached. Any amendments made after the initial signing typically require the same formal process – new legal advice and fresh signatures.
It’s not uncommon for parties to mistakenly use digital signatures or fail to properly witness signatures, which can create grounds for challenging the agreement’s validity later on.
Undue Influence or Duress
Presenting a BFA shortly before a significant event (like a wedding) can constitute duress, potentially invalidating the agreement. Courts have set aside agreements where one party was pressured to sign without adequate time for consideration or where there was an element of emotional manipulation.
For example, presenting a prenuptial agreement to your partner one week before the wedding, when invitations have been sent and significant deposits paid, could be considered duress. The proximity to the event creates inherent pressure to sign regardless of the terms.
To avoid this issue, BFAs should be negotiated and finalised well in advance of any significant event, ideally at least several months before a wedding or similar commitment. This timing allows both parties ample opportunity to consider the agreement, negotiate terms, and receive proper legal advice without feeling rushed or pressured.
Overly Broad or Unfair Provisions
Agreements that attempt to be excessively one-sided or that include provisions that would leave one party in a significantly disadvantaged financial position may be vulnerable to being set aside. While BFAs provide considerable flexibility, there are limits to what the courts will enforce.
For instance, provisions that attempt to contract out of child support obligations are unenforceable. Similarly, clauses that would leave one party destitute or dependent on government support are likely to be scrutinised and potentially set aside under the “unjust and inequitable” provisions of the Family Law Act.
A more balanced approach, which recognises the contributions and needs of both parties while still protecting pre-existing assets, is more likely to withstand legal challenge. This doesn’t mean the agreement must provide equal division – it simply means the provisions should be reasonably justifiable.
Failing to Address Future Changes
Many couples overlook the importance of including provisions for future events such as the birth of children, significant inheritance, career changes, or disability. Without clauses addressing how these circumstances might affect the agreement, you may find your BFA becomes inappropriate or unfair over time.
For example, if one party gives up their career to raise children, this significant change in circumstances should ideally be addressed in the initial agreement. Similarly, provisions for what happens if one party receives a substantial inheritance or experiences a significant change in financial status should be considered.
While addressing every potential future scenario is impossible, a well-drafted BFA should include reasonable provisions for the most likely changes and potentially a mechanism for reviewing the agreement after certain trigger events or time periods.
Using Template Agreements or DIY Solutions
One increasingly common mistake is attempting to create a BFA using templates found online or through DIY legal services. Binding Financial Agreements are highly technical legal documents that must comply with specific requirements of the Family Law Act. Generic templates rarely account for the particular circumstances of individual couples or the specific legal requirements in Australia.
The cost of having a properly drafted agreement may seem high initially, but it pales in comparison to the potential costs of litigation if the agreement is challenged and found invalid. Court proceedings to determine property settlements can cost tens of thousands of dollars, not to mention the emotional toll of prolonged legal disputes.
Furthermore, Australian courts have consistently shown they will scrutinise BFAs carefully and will not hesitate to set aside agreements that don’t meet the strict requirements under the law. Template agreements simply cannot provide the customisation and legal expertise needed to ensure enforceability.
Overlooking Superannuation Interests
Superannuation is often one of the largest assets couples possess, yet many BFAs fail to adequately address these interests. Under Australian law, superannuation is treated as property that can be divided in a separation, despite its unique characteristics as a preserved asset.
A proper BFA should clearly state how superannuation will be treated in the event of separation. This might include provisions for splitting superannuation according to a set formula, or provisions that each party retains their own superannuation regardless of its value.
Remember that dealing with superannuation in a BFA requires specific clauses that comply with both the Family Law Act and relevant superannuation legislation. Failure to address superannuation properly may lead to uncertainty and potential litigation if the relationship ends.
Ignoring International Assets or Connections
For couples with assets in multiple countries or where one or both parties have international connections, failing to consider the cross-jurisdictional implications can be a serious oversight. Australian BFAs may not be automatically recognised in other countries, and foreign prenuptial agreements may not fully protect Australian assets.
If you have assets overseas, plan to relocate internationally, or have dual citizenship, your BFA should specifically address these circumstances. In some cases, you may need multiple agreements in different jurisdictions to ensure comprehensive protection.
This is particularly important for immigrants to Australia, Australians with foreign spouses, or couples with significant overseas investments or property. Consulting with lawyers who understand both Australian family law and the relevant international jurisdictions is essential in these cases.
Inappropriate Timing of the Agreement
Beyond the issue of duress mentioned earlier, the timing of when you create your BFA can impact its effectiveness. Many couples make the mistake of thinking BFAs are only relevant before marriage (prenuptial agreements) or during marriage (postnuptial agreements).
However, BFAs can be created at three distinct times: before marriage (section 90B agreements), during marriage (section 90C agreements), and after separation but before divorce (section 90D agreements). Each type serves different purposes and has slightly different requirements.
Choosing the wrong timing or type of agreement for your circumstances can limit its effectiveness or create unnecessary complications. For instance, waiting until after marriage to create an agreement means that certain assets have already become matrimonial property, potentially changing how they should be handled in the agreement.
Failing to Review and Update the Agreement
A BFA is not a “set and forget” document. Significant life changes such as having children, receiving an inheritance, starting a business, or acquiring valuable assets should trigger a review of your agreement to ensure it remains appropriate and fair.
Many couples make the mistake of creating a BFA early in their relationship and never revisiting it, even as their circumstances change dramatically. An agreement that was reasonable for a young couple with few assets may become highly inappropriate after 15 years of marriage, children, and accumulated wealth.
While your BFA doesn’t necessarily need to be updated with every minor change in circumstances, it should be reviewed periodically (every 3-5 years is a good rule of thumb) and after major life events. Any updates or changes must follow the same formal process as the original agreement, including independent legal advice for both parties.
Need Help With Your Binding Financial Agreement?
Creating a legally sound Binding Financial Agreement requires careful planning, full disclosure, and expert legal guidance. As lawyers who have significant experience with BFAs, we can help you avoid the common pitfalls that often invalidate them. Contact our team today by calling 1300 529 888 for fixed-fee, transparent legal services that protect your financial interests without unnecessary legal jargon.