What is a Binding Financial Agreement?
In this video, Accredited Family Law Specialist and Page Provan Director Stephen Page discusses how to deal with your divorce or separation using Binding Financial Agreement and how is it different from consent orders.
G’day. [It’s] Stephen Page from Page Provan Family and Fertility Lawyers. One of the things you know about family lawyers, like anyone else is we love to talk in jargon. And one of the things we talk about, well, we trip off these days about the Federal Circuit and Family Court of Australia, which is a bit mouthful. So most of the time we just say the family court, but that’s its full title.
Or sometimes we say FCC. That’s the same place. And sometimes we talk about the FLA, which is the Family Law Act, and everyone sort of rolls their eyes. What does that mean? That’s the law, the main law that deals with people who split up.
Okay. And then we talk about such things as family reports. And we go, okay. What’s that what’s the report about a family that an expert does. And then we talk about, well, if you split up and you want to deal with your property, there are two ways of doing it.
One is called a consent order, and I’ve just done a video about consent orders. Go and have a look at that. And another way is called a binding financial agreement, a BFA. So suddenly lawyers are sparing off this term BFA and go, okay, no idea what that is. Sometimes I’ve had clients say, NFI to a BFA and go, that’s very rude.
But a BFA is a binding financial agreement. Sometimes we call it a financial agreement. And the other day I was asked, “Well, why would you have one of those?” Good question. Well, because you want to cut a deal with the other side.
“Well, why wouldn’t you just have a consent order?” And so the starting point is most of the time, when you split up, lawyers will recommend doing a consent order, not doing a BFA. Sometimes if you’re getting together, we’ll do a BFA. That’s what we call a prenup. Everyone calls a prenup.
Well, the technical term is it’s a buying financial agreement or a financial agreement. So you have one before you get together. You have one while you’re still married or in a relationship together, or you have one after your relationship has busted up or in the case of a marriage, of course, after you’re divorced.
So they have those different categories. But the essence of them is to deal with property settlement, and the essence of them is to contract out of the Family Law Act.
Why would you do that? Well, because we like the deal that we’ve got. Well, why would someone want to do that? Sometimes it’s because you’re getting into a relationship. And obviously, you don’t go to court to get an order saying you’re splitting up when you’re getting together.
So you have an agreement. Sometimes the court doesn’t have jurisdiction to deal with your property settlement because you split up for so long that you don’t actually fall directly within the court’s jurisdiction because there’s a time limit. The time limit for property, spouse maintenance, when you file in court, is no greater than one year after you’re divorced or two years if you’re in a de facto relationship after you separate, everyone thinks, okay, well, that’s two years in both cases.
No, it’s two years in a de facto relationship, but it is, however long it takes to get divorced. Some people don’t get divorced and the time that it doesn’t kick in. But in this example, you have got divorced and the year has gone by after the divorce and you haven’t dealt with it, or you have split up in a de facto relationship for greater than two years. But you agree there still needs to be a deal done. And as a result, you do a binding financial agreement.
You could seek leave to the Federal Circuit and Family Court of Australia to open commence proceedings concerning properties, settlement, then have orders made. But typically at that point, it’s often easier to do a binding financial agreement.
A financial agreement is useful if you want to cap liability on spousal maintenance, so say I’m the husband and I’m in full-time employment and the wife isn’t working, but she’s not on a pension. So if she’s on a pension, the technical term is an income-tested pension allowance or benefit.
But if she’s on one of those from Centrelink or similar, then there may be little advantage in having a financial agreement because it doesn’t cover the spousal maintenance in that case. But if you think that in an example that the wife is in some employment at the moment but not doing terribly great, but sometime in the future might decide that she’s going to stop work, then it’s good to cap liability with a financial agreement. So often a financial agreement will be done in that case, along with consent orders.
And why would we do that? Why wouldn’t we just have one on the other?
Well, a consent order doesn’t deal with spousal maintenance completely, and I’ll have another video about that. So you can listen to all the technical stuff about that, but just take my word for it. It doesn’t cover it completely. A financial agreement where one of the parties does not have an income-tested pension allowance or benefit does. But why wouldn’t we recommend a financial agreement in every case?
Well, there are two reasons or three reasons for that. The first is there’s a higher chance I think of these things being set aside than there is with a consent order being made. Or to put it another way, there is a higher chance for these not being enforced than there is with a consent order being made. So they’re tricky documents.
And because they’re tricky documents, lawyers make sure that every step is done correctly, which means there is a ream of paperwork which then takes us to the next point. They’re more expensive. So if it’s cheaper to do a consent order most of the time, it’s better to do that. And the third reason that they’re not always advocated is because you need a lawyer on the other side. So both parties have to have a lawyer.
The law says that loud and clear. So if you are contracting out, evidently, you should be legally represented and get advice on that. But if you have one party who says no, I don’t want a lawyer. Well, you can’t do it. It’s really that simple.
So financial agreements have their place. I certainly use them from time to time to cap liability, sometimes with a prenup. Do those as well. But most of the time, if you’re splitting up, I would normally recommend having a consent order. The last thing I’ll say about financial agreements: every case is unique. Your facts. Although you may think they’re identical to someone else’s are not. They are unique to you and your ex. So it’s important to get the right solution for you.
And whether that’s a consent order or a financial agreement or a combination of both. That’s something that we can advise you about. Thank you.