Considering a Binding Financial Agreement (BFA) while already living with your partner is a question many de facto couples in Australia face. Whether you’ve recently moved in together or have been cohabiting for years, understanding the implications of formalising your financial arrangements can provide security and clarity. This article explores whether obtaining a BFA is appropriate for your situation, the legal considerations involved, and how such an agreement can protect both parties in a de facto relationship.
Why Consider a BFA When Already in a De Facto Relationship
Many Australians believe that financial protection is only necessary before commencing cohabitation, but this isn’t the case. BFAs can be created at any stage of a relationship, including after you’ve already established a de facto living arrangement. In fact, having experienced life together might give you clearer insights into what financial protections would benefit both partners.
Under Australian law, couples who have lived together for two years or more are generally considered to be in a de facto relationship, which carries many of the same legal implications as marriage regarding property division if the relationship ends. This means that without a BFA, your assets could be subject to division under the Family Law Act, regardless of whose name they’re in or who contributed what.
Creating a BFA while already living together allows you to formalise arrangements based on your actual living situation rather than hypothetical scenarios. You’ve had time to observe financial habits, asset accumulation patterns, and contributions to the household, making it easier to craft an agreement that accurately reflects your circumstances.
Legal Status of De Facto Couples in Australia
Before discussing BFAs specifically, it’s important to understand how Australian law views de facto relationships. Under the Family Law Act 1975, de facto partners have similar rights and responsibilities to married couples after two years of cohabitation. This means that if your relationship ends, either party may make claims against the other’s property, regardless of whose name assets are registered under.
The court considers multiple factors when determining if a de facto relationship exists, including the duration of the relationship, nature of common residence, sexual relationship, financial interdependence, ownership of property, care of children, and public aspects of the relationship. Once established, a de facto relationship creates legal obligations that many couples aren’t fully aware of until separation occurs.
This legal recognition means that without a BFA, the courts would apply the same property settlement principles to your relationship as they would to a marriage, potentially resulting in outcomes neither party anticipated or desired. A BFA allows you to opt out of these default legal provisions and create your own binding framework.
The Two-Year Threshold
The two-year cohabitation period is significant in Australian family law. Once you cross this threshold, financial claims become available to both parties that weren’t previously accessible. However, it’s worth noting that even relationships shorter than two years can be deemed de facto if there’s a child or substantial contributions were made by one party.
This automatic application of family law principles after two years catches many couples by surprise. They may have moved in together for convenience or to save on rent, without intending to merge their financial lives. By the time they realise the legal implications, they’ve already acquired rights against each other’s assets that can only be modified through a formal agreement like a BFA.
Creating a BFA after passing this threshold doesn’t invalidate any rights that have already accrued, but it can establish clear rules for the future. This makes BFAs valuable even for established de facto relationships, as they can prevent further entanglement of finances if that’s what both parties desire.
Benefits of Getting a BFA After Cohabitation Has Commenced
Creating a BFA after you’ve already begun living together offers several distinct advantages. First, you have a clearer picture of your financial compatibility and how you manage money as a couple. This real-world experience provides valuable insights that can inform a more practical and tailored agreement than one created before cohabitation.
Second, a BFA can address assets acquired during your relationship so far, as well as those you brought into it and those you expect to acquire in the future. This comprehensive approach ensures nothing is overlooked and that both parties’ contributions are fairly recognised. For instance, if one partner has made significant improvements to the other’s property, a BFA can ensure this contribution is acknowledged.
Third, circumstances often change during cohabitation. Perhaps one partner has received an inheritance, started a business, or taken on significant debt. A BFA allows you to respond to these changed circumstances with a legally binding agreement rather than relying on informal understandings that may not be upheld in court.
Protecting Pre-existing Assets
Many people enter de facto relationships with assets they’ve accumulated independently—property, investments, superannuation, or business interests. Without a BFA, these assets could potentially be subject to claim by your partner if the relationship ends, especially after the two-year threshold has passed.
A BFA can specifically ring-fence these pre-existing assets, ensuring they remain your separate property regardless of the relationship’s duration. This protection can be particularly important for people entering second relationships, those with children from previous relationships, or anyone who has worked hard to build their financial position independently.
The agreement can also specify how the increase in value of these assets during the relationship will be treated. For example, if you owned a property before cohabitation that has appreciated significantly, a BFA can clarify whether that growth remains yours alone or becomes partially subject to division.
Potential Challenges of Creating a BFA Mid-Relationship
While there are many benefits to creating a BFA after cohabitation has begun, there are also challenges to navigate. The most significant is the emotional aspect—bringing up the topic of a financial agreement when you’re already living together can feel awkward or even suggest a lack of trust. However, framing it as a practical financial planning step rather than preparation for a breakup can help overcome this hurdle.
From a legal perspective, the court scrutinises BFAs created after cohabitation has commenced more closely for signs of duress or unfair pressure. To ensure validity, both parties must enter the agreement freely and with full understanding. This means allowing ample time for consideration and avoiding presenting the BFA during relationship difficulties or stressful periods.
Another challenge is accurately accounting for contributions already made during the relationship. If one partner has contributed significantly to joint assets or the other’s property, these contributions need fair recognition in the agreement. This often requires detailed financial disclosure and careful negotiation to reach an arrangement both parties consider equitable.
Ensuring Your BFA Will Be Upheld
Courts can set aside BFAs if they don’t meet strict legal requirements. To maximise the chances of your agreement being upheld, several elements are essential. First, both parties must receive independent legal advice before signing. This isn’t just a formality—it’s a crucial protection that ensures each person understands the agreement’s implications and how it affects their rights.
Complete financial disclosure is also vital. Hiding assets or providing misleading information can invalidate the entire agreement. Both parties should provide comprehensive details of their financial position, including assets, liabilities, income, and financial resources. This transparency builds trust and strengthens the agreement’s legal standing.
Finally, the agreement must be fair and reasonable at the time it’s made. While BFAs allow couples to opt out of standard family law provisions, agreements that would leave one party in a position of severe financial disadvantage may still be vulnerable to challenge. Striking a balance between protecting assets and ensuring neither party would face financial hardship is important.
What Your BFA Should Cover
A comprehensive BFA for an existing de facto relationship should address several key areas. First, it should clearly identify which assets and liabilities each partner brought into the relationship and specify how these will be treated if the relationship ends. This creates clarity about pre-relationship property and prevents future disputes.
Second, the agreement should establish how assets acquired during the relationship will be divided. This includes property, investments, superannuation, business interests, and even household items. You might choose equal division, division based on contribution, or another arrangement that suits your specific circumstances.
Third, your BFA should address financial support (spousal maintenance) after separation if relevant. While many couples choose to waive these rights, others may include provisions for temporary support, especially if one partner has reduced their earning capacity to care for children or support the other’s career.
Addressing Future Events
A well-drafted BFA should also consider future events that might affect your financial relationship. For instance, how will the birth of children impact your financial arrangements? What happens if one partner receives a significant inheritance or gift? What if one of you starts a business or experiences a substantial change in income?
Including sunset clauses or review triggers can make your BFA more flexible and responsive to life changes. For example, you might specify that the agreement will be reviewed after five years, upon the birth of a child, or if either party’s financial circumstances change significantly. This prevents the agreement from becoming outdated or unfair as your lives evolve.
It’s also prudent to include provisions for how the agreement can be terminated or modified if both parties agree to changes in the future. This flexibility allows your BFA to evolve with your relationship rather than becoming a rigid document that no longer serves your needs.
Alternatives to a BFA for De Facto Couples
While a BFA offers the strongest legal protection, there are alternatives worth considering. A non-binding cohabitation agreement can clarify expectations about finances without the same legal formalities. While not enforceable in family court, it documents your intentions and can guide informal property division if separation occurs amicably.
Joint ownership agreements for specific assets (like property) can protect interests in those particular items without addressing the entire financial relationship. These can be useful if your main concern is protecting a specific high-value asset rather than creating comprehensive financial separation.
Estate planning documents such as wills and powers of attorney can address what happens to your assets in case of death or incapacity, which standard BFAs don’t cover. Having both a BFA and proper estate planning provides the most comprehensive protection for de facto couples.
When a BFA Might Not Be Necessary
Not every de facto couple needs a BFA. If both partners have similar financial positions, few assets, and shared financial goals, the default family law provisions might be appropriate for your situation. Similarly, if you’re in a short-term living arrangement with no intention of creating a long-term financial partnership, a BFA might be unnecessary complexity.
However, even in these situations, it’s worth having an informed discussion about your financial expectations and understanding the legal implications of your living arrangement. Many couples are surprised to learn how the law views their relationship after the two-year threshold, regardless of their personal intentions.
If you’re uncertain whether a BFA is right for your situation, consulting with a family lawyer can help clarify the potential benefits and drawbacks based on your specific circumstances. This consultation doesn’t commit you to creating an agreement but provides the information needed to make an informed decision.
The Process of Creating a BFA While Living Together
Creating a BFA while already in a de facto relationship follows a specific process to ensure legal validity. First, have an open conversation with your partner about your financial goals, concerns, and what you both hope to achieve with the agreement. This foundation of mutual understanding is crucial for a successful outcome.
Next, both partners should compile comprehensive financial information, including assets, liabilities, income, and financial resources. This disclosure forms the basis of the agreement and helps identify what needs protection. Be thorough and transparent—omissions can invalidate the agreement later.
Once you have a clear picture of your financial situation, engage a lawyer experienced in family law to draft the agreement. Each partner must then seek independent legal advice on the draft to ensure it’s fair and they fully understand the implications. This independence is non-negotiable—using the same lawyer for both parties would compromise the agreement’s validity.
Timeline and Costs
The process of creating a BFA typically takes several weeks to complete properly. Rushing increases the risk of errors or omissions that could render the agreement unenforceable. Allow time for financial disclosure, drafting, legal review, potential negotiations, and finalisation.
Costs vary depending on the complexity of your financial situation and the level of negotiation required. Simple agreements might cost a few thousand dollars, while complex situations involving businesses, trusts, or significant assets will be more expensive. While this may seem substantial, compare it to the potential cost of property settlement litigation if your relationship ends without an agreement in place.
Remember that a BFA is an investment in financial clarity and security. The cost of creating a legally sound agreement is typically far less than what might be at stake in a disputed property settlement proceeding through the courts.
Need Help With Your Binding Financial Agreement?
Understanding whether a BFA is right for your de facto relationship requires careful consideration of your specific circumstances, financial goals, and the legal implications of your living arrangement. While creating a BFA after cohabitation has begun presents some challenges, it can provide valuable protection and clarity for both partners.
As family lawyers in Australia, we can help you determine whether a BFA is appropriate for your situation and guide you through the process of creating a legally sound agreement. Contact our team today by calling 1300 529 888 to discuss how my law firm can assist with protecting your financial future while respecting the relationship you’ve built together.