People often consider DIY or template binding financial agreements (BFAs) as a cost-effective alternative to professionally drafted agreements. While the appeal of saving money is understandable, these DIY solutions come with significant risks that can ultimately cost you more than you save. This article explores the dangers of DIY and template BFAs in Australia, and why professional legal assistance is essential for creating enforceable agreements that protect your assets.
Why DIY and Template BFAs Are Problematic
Binding financial agreements, commonly known as prenuptial agreements or “prenups,” are legal documents that outline how a couple’s assets will be divided in the event of relationship breakdown. These agreements can be made before, during, or after a relationship, and when properly executed, they can provide certainty and protection for both parties. However, DIY and template solutions present several serious issues.
The Family Law Act 1975 sets out strict requirements for BFAs to be legally binding. These requirements include that each party must receive independent legal advice before signing the agreement. This is not merely a formality but a fundamental requirement for validity. When people attempt to create their own agreements using templates or online resources, they often miss this critical step, rendering their agreement potentially unenforceable from the start.
Templates, by their very nature, are generic documents designed to cover common situations. They cannot account for the unique circumstances of your relationship, assets, or future plans. Australian family law is complex and nuanced, requiring agreements to address specific legal principles that templates simply cannot anticipate. A template that worked for one couple might be wholly inadequate for another, leaving significant gaps in protection.
Legal Validity Concerns
The courts have repeatedly demonstrated their willingness to set aside BFAs that don’t meet strict legal requirements. In the landmark case of Thorne v Kennedy [2017], the High Court of Australia set aside two financial agreements due to unconscionable conduct and undue influence, despite the fact that both parties had received legal advice. This case highlights how even professionally drafted agreements can be vulnerable if not executed properly – DIY agreements face even steeper challenges.
For a BFA to be binding, it must comply with section 90G of the Family Law Act, which requires that both parties receive independent legal advice about the effect of the agreement on their rights and the advantages and disadvantages of entering into the agreement. A lawyer must then provide a signed certificate confirming this advice was given. DIY templates typically don’t include provisions for these certificates, and without them, the agreement is unenforceable.
Furthermore, Australian courts scrutinise BFAs for technical compliance with drafting requirements. Minor errors in wording, structure, or execution can invalidate an agreement. Legal practitioners who specialise in family law stay current with legislative changes and case law developments that affect the validity of BFAs – knowledge that the average person using a template simply doesn’t have.
Inadequate Asset Protection
One of the primary purposes of a BFA is to protect assets. DIY agreements often fail to properly identify and value all assets, particularly complex ones like business interests, trust arrangements, or potential inheritances. Without comprehensive identification and valuation, the agreement may leave significant assets vulnerable in the event of separation.
Australian family law recognises various types of contributions to a relationship, including non-financial ones. DIY templates typically don’t adequately address how these contributions might affect asset division. For example, if one partner reduces their work hours to care for children or support the other’s career, a poorly drafted BFA might not account for this sacrifice, leading to unfair outcomes.
Future assets and potential changes in circumstances also present problems for template agreements. A well-drafted BFA should anticipate possible future scenarios such as the birth of children, career changes, inheritances, or business growth. Templates typically provide static solutions that don’t account for the dynamic nature of relationships and financial situations over time.
The False Economy of DIY Solutions
The initial cost savings of a DIY or template BFA can be quickly outweighed by the potential financial consequences if the agreement fails when needed most. If your DIY agreement is set aside by a court during separation proceedings, you may face substantial legal costs fighting over asset division – costs that far exceed what you would have paid for a properly drafted agreement in the first place.
Consider that the average property settlement dispute in Australia can cost each party tens of thousands of dollars in legal fees. Even a partial property settlement case might cost $20,000-$40,000, while complex matters can exceed $100,000. These figures make the cost of a professionally drafted BFA seem minimal by comparison, especially considering the protection it provides.
Beyond the direct legal costs, an invalid BFA can result in unfavourable asset division outcomes. Without an enforceable agreement, the Family Court will apply the principles in the Family Law Act to determine a “just and equitable” division of property. This might result in a significantly different outcome than what you had intended with your DIY agreement, potentially costing you hundreds of thousands of dollars in assets.
Hidden Complexities in Family Law
Australian family law contains many nuances that DIY approaches simply cannot address. Superannuation splitting, for example, requires specific technical language to be enforceable. Without the correct clauses, a DIY agreement might fail to protect what is often one of the largest assets in a relationship.
Similarly, the treatment of debts, business interests, and inheritances requires specific expertise. A DIY agreement might not properly distinguish between joint and separate debts, or it might fail to protect a family business from being considered a relationship asset. These omissions can have significant financial implications if the relationship ends.
The legal concept of “full and frank disclosure” is another area where DIY agreements often fall short. Both parties must disclose all relevant financial information before signing a BFA. Templates rarely provide adequate guidance on what must be disclosed and how to document this disclosure properly, creating another potential avenue for the agreement to be challenged later.
Common Pitfalls in Template BFAs
Template BFAs often contain outdated or incorrect legal references. Australian family law has undergone significant changes over the years, and templates may not reflect current legislation. Using a template with outdated legal references can immediately invalidate your agreement, rendering it useless when needed.
Another common issue is that templates frequently include unenforceable provisions. For example, child support and custody arrangements cannot be permanently determined in a BFA under Australian law. Templates that attempt to cover these areas may be partially or entirely invalidated by courts, leaving your financial arrangements vulnerable as well.
DIY agreements also tend to use ambiguous language that can lead to disputes about interpretation. Legal documents require precise wording to avoid ambiguity, and without legal training, it’s easy to create clauses that could be interpreted in multiple ways. These ambiguities can lead to costly court battles over the intended meaning of the agreement.
Procedural Requirements Often Missed
The execution process for BFAs in Australia includes specific procedural requirements that must be followed exactly. Each party must sign the original agreement in the presence of witnesses, and the agreement must include certificates of independent legal advice. DIY approaches often miss these crucial procedural steps, creating fatal flaws in the agreement’s validity.
The cooling-off period is another procedural element often overlooked in DIY agreements. While not strictly required by law, courts often look favourably on agreements that provided parties with adequate time to consider the terms before signing. Template agreements rarely include provisions for documenting this consideration period, potentially weakening the agreement’s standing in court.
The requirement for independent legal advice means each party must consult with a different lawyer. DIY approaches sometimes attempt to shortcut this by having both parties see the same lawyer or, worse, having no legal consultation at all. This fundamentally undermines the agreement’s validity and defeats the entire purpose of creating the document in the first place.
Real-World Consequences
Australian courts have consistently shown little sympathy for parties who attempt to enforce DIY binding financial agreements. In cases like Hoult & Hoult [2013], the court set aside an agreement due to technical deficiencies in the drafting and execution process, despite clear evidence that both parties intended to be bound by it. The consequences for the party who thought they were protected were financially devastating.
Even when DIY agreements contain some valid elements, courts may set aside the entire agreement if critical components are flawed. This “all or nothing” approach means that even if you got most things right in your DIY agreement, a single significant error could render the entire document unenforceable, leaving you with no protection at all.
The emotional and financial stress of discovering your BFA is invalid during an already difficult separation cannot be overstated. Many people only learn of their agreement’s deficiencies when they attempt to rely on it – precisely when they are most vulnerable and when the stakes are highest.
The Relationship Impact
Beyond the legal implications, poorly drafted BFAs can create relationship tension. Ambiguous clauses or unfair provisions that weren’t properly explained by independent lawyers can lead to resentment and mistrust. Professional drafting helps ensure both parties fully understand and are comfortable with the agreement, fostering transparency rather than suspicion.
A professionally drafted BFA provides peace of mind that can actually strengthen a relationship. When both parties know exactly where they stand financially and have had proper legal advice, it removes financial uncertainty from the relationship. DIY approaches, with their inherent uncertainty, can have the opposite effect.
The process of creating a BFA should be collaborative and educational, helping both parties understand their financial position and commitments. Template approaches miss this opportunity, focusing solely on the document rather than the understanding and communication that should accompany it.
Professional BFAs: The Worthwhile Investment
Professional BFAs are tailored to your specific circumstances, taking into account your unique assets, financial situation, and relationship dynamics. Unlike templates, they can address complex arrangements such as business interests, trust structures, and potential inheritances with the necessary legal precision.
A properly drafted BFA provides certainty and clarity for both parties. When created by a qualified family lawyer, these agreements leave little room for interpretation or dispute. This clarity can prevent costly litigation if the relationship ends, as both parties have a clear understanding of their entitlements.
The process of creating a professional BFA also ensures that both parties receive adequate independent legal advice. This not only satisfies a legal requirement but also ensures that both parties fully understand the implications of the agreement they’re signing, reducing the risk of future claims of unfairness or duress.
Future-Proofing Your Agreement
Professional BFAs can include provisions for changing circumstances, such as the birth of children, significant inheritance, or career changes. These provisions help ensure the agreement remains fair and relevant throughout the relationship, reducing the risk of it being set aside due to unforeseen changes in circumstances.
Experienced binding financial agreement lawyers stay current with legislative changes and case law developments that might affect the validity of BFAs. They can ensure your agreement complies with the latest legal requirements and precedents, something that no static template can offer.
Professional agreements also typically include stronger evidentiary support, such as detailed financial disclosures and statements of understanding. This supporting documentation can be crucial if the agreement is ever challenged, providing evidence that both parties entered into it with full knowledge of the circumstances.
Need Help With Your Binding Financial Agreement?
The risks of DIY and template binding financial agreements far outweigh any initial cost savings. A professionally drafted BFA provides security, clarity, and peace of mind that templates simply cannot match. As a law firm in Australia, we can help you create a binding financial agreement that truly protects your assets and provides the security you’re seeking. Contact our team at my law firm today by calling 1300 529 888.