Shielding Your Future: How Binding Financial Agreements Offer Security at Every Relationship Stage

First things first: the world of the law is full of terminology that the professionals use as a kind of shorthand, but which the layperson doesn’t fully understand. It is no worse in its way than medical terminology, and it exists for the same reasons: because the law is extremely complex and there must be no room for misunderstandings. Once you know the terminology, there can be an end to grey areas.

So, what is a binding financial agreement (BFA)? We know what the words mean, but the phrase has a specific meaning in marriages and legally formalised personal relationships. It’s what is commonly known as a prenuptial agreement.

Origins of the BFA

While it is tempting to think of BFAs being something devised by wealthy Hollywood actors and other men with perhaps more money than any other form of attractiveness to women, it could -and still can - be a way to protect themselves from gold diggers.

With the recent change in the balance of power between the sexes, successful and wealthy women are just as likely to insist on being protected in this way, and the roots of the whole thing go back thousands of years because, as they say, there is nothing new under the sun. In cultures where the dowry system was/is used, it was the woman who needed this protection, because their fortune was used as a means of making a "good" or advantageous marriage.

Because of the very nature of marriages and other formal personal relationships, in the event of a breakup, there is often very little generosity and compassion in the air, which makes coming to a financial settlement a tricky and sensitive business. That’s what makes the binding financial agreement such a good idea in many cases. True, it can lead to some awkward conversations that bring a severe case of realism into a relationship that may still be basking in the realms of romantic love, but it is increasingly being seen as a logical move to avoid vitriolic and costly disputes at the end of the relationship.

What makes the term binding financial arrangement more precise than prenuptial agreement is the fact that prenuptial means before marriage, whereas a BFA can be drawn up during the marriage or even after it has finished, at every relationship stage.

In Australia, binding financial agreements are recognised under the Family Law Act 1975 to provide clarity and certainty in matters of finance and assets in the event of a relationship breakdown.

Are Binding Financial Agreements Standard?

Each family lawyer will approach the task of drafting a BFA in their own way, and it will be based on the particular circumstances of the two parties involved, with the emphasis being on the interests of their client. The other party has the right to ask for changes to be made, and it is common practice for the other party to have their own lawyer look over the draft and give their opinion on whether it seems fair or overly biased towards the party that drafted it.

With this in mind, it can take some time for a version to be reached that is satisfactory in the eyes of both parties, but because the BFA is designed to be a helpful document that avoids unnecessary heartache in the event of it being implemented, it is time well spent.

Family law in Australia is less combative than in many countries. There is no requirement for one party to establish that it is the other party's fault, but that a breakdown has occurred and there is no chance of a reconciliation. Binding financial agreements can help to keep the atmosphere calm at a time of stress for all concerned.

Throughout the world, countless divorces take up court time with legal battles that could have been avoided if a BFA had been in place, and these are battles that no one enjoys, so to make arrangements in advance in the presence of rational argument and mutual respect makes a lot of sense.

Reasons For Having a BFA

When one party is much wealthier than the other, an equal division of finances, assets and property if they split is not always seen as being fair. Everyone has heard the stories of famous people losing half their wealth to an ex-partner who may or may not have contributed to the success that generated the money.

Similarly, when one party enters the legal arrangement carrying significant debts, is it reasonable to expect the other party to assume partial responsibility for those debts afterwards? Intense love creates a certain feeling of unity and shared responsibility that flies out of the window when bitterness and acrimony arrive.

If, say, one party receives a vast sum of money or becomes extremely successful in some way that makes them very wealthy, the situation is not as it was when they entered their legal partnership. It may need to be negotiated (as opposed to renegotiated, because without significant amounts of money and/or property being involved in the early days, there was relatively little to discuss in that respect).

Perhaps the hardest of all BFAs to arrive at is the post-separation one. The purpose of this is usually to prevent a costly legal battle, and with feelings running high already, that may be a tall order – but it can be worth attempting if the atmosphere is relatively civilised.

BFAs vs Court Orders

A BFA is a private agreement between two parties that is negotiated and agreed upon without involving a court of law. A court order, including consent orders and property settlements, goes through the Federal Circuit and Family Court of Australia. These can offer even stronger protection but involve additional costs because courts do not operate free of charge.

BFAs can be contested in certain circumstances, such as the discovery that full financial disclosure was withheld, or that the agreement was made fraudulently or with one party under duress, whereas court orders are more difficult to challenge.

BFAs vs Informal Agreements

The idea of structuring your financial future by means of an informal agreement is almost always doomed to fail. Such agreements have no legal standing, and to entrust your affairs to such a homespun arrangement is naive. Looking back at the title of this article, we see the words shielding your future. An informal agreement is a shield made of cloth: it may seem comforting at first, but when the arrows are flying, it provides no protection at all.

Binding Financial Agreements and the Future of Relationship Breakdowns

As societies around the world become ever more sophisticated and mental health is taken ever more seriously, the avoidance of unpleasantness in relationship matters seems a plausible, if unlikely, conclusion. Binding financial agreements can play a part in making breakups less traumatic, and the words security at every relationship stage make real sense.

Getting this right in any individual's case depends on finding a family lawyer they trust who can go about this in a way they feel comfortable with. Everyone needs a lawyer at least once or twice in their life, but you don't necessarily have to use the same one for everything, and having a top family law specialist to call on should be something every thinking individual ensures.