Binding Financial Agreement vs Consent Orders
Thanks to film and television most people are familiar with the term ‘pre-nuptial agreement’ (or ‘prenup’), however, in Australia, we do not have prenups precisely as they exist in American movies. Under Australian family law, the way in which your assets will be divided if you and your spouse separate is through either a Binding Financial Agreement or by making an application to the Court for Consent Orders.
What is a Binding Financial Agreement (BFA)?
A BFA is an agreement made between the two parties to the relationship which covers financial issues such as property and/or spousal maintenance agreements.
A BFA can be created before or during a relationship or after a relationship dissolves. The biggest benefit of a BFA is that the parties to the agreement can determine how the assets are split and make a decision relating to spousal maintenance (if it is to be paid) without the need to take the matter to court. This is particularly useful if one or both parties to the relationship acquired assets from before the relationship that they would like to retain, or if one or both parties has children from a prior relationship for whom they would like their assets to be protected.
A BFA drawn up at the commencement of, or during, a relationship will include each party’s assets, liabilities, superannuation and other sources of income and how they are to be dealt with if and when the relationship dissolves. A BFA entered into at the dissolution of a relationship will act as a financial settlement for the parties.
It is up to each party to the BFA to seek independent legal advice before they enter the agreement so they clearly understand how they may be impacted by it and to ascertain the advantages and disadvantages of this type of agreement. Whether the BFA is equitable under family law will not be considered unless court proceedings are commenced either to enforce the BFA or have it or set aside. A party may seek to have the BFA set aside if circumstances change, such as if children resulted from the relationship after the BFA was entered into and it is no longer equitable. A court may also set aside a BFA in instances where fraud existed, or one party lied about their assets and/or liabilities. In instances where one party does not meet the terms of the BFA, Orders may also be sought in court.
A BFA cannot be used to make parenting arrangements. These are considered separately and formalised through Consent Orders.
The party with less financial resources should consider if they will be able to honour or get out of the contract in the future if their circumstances change and the party with stronger financial resources should consider how children will affect their financial position.
What are Consent Orders?
Consent Orders formalise an agreement reached by a former couple in relation to parenting arrangements and/or spousal maintenance and financial and/or property settlements.
To make an application for Consent Orders, the parties must provide to the court:
- all relevant financial information which will allow the court to determine whether the Orders are equitable and fair for both parties; and
- proposed parenting arrangements and details of the child/ren concerned. If relevant, information about allegations of child abuse and family violence will also be required so the court can determine if what the parties have proposed is in the best interests of the child/ren.
Before signing off on the Consent Orders, the court will revert back to the parties if it requires further information or has specific questions relating to the proposed arrangements.
The time in which the application must be made for Consent Orders for property / financial matters differs depending on the type of relationship. For married couples, the application must be made within one year from the date the divorce became official and for de facto couples the application must be made within two years from the date of separation.
Parties wishing to make applications outside of these timeframes will have to make a special application to the court for ‘leave to proceed out of time.’ This can be costly and time-consuming and there is no guarantee that the court will grant the application, which means the party seeking a property settlement and/or spousal maintenance will have no entitlement to it.
When should you use a BFA and when should you seek Consent Orders?
There is no straight answer for when a BFA and Consent Orders are most appropriate – it will depend on your own circumstances. Each document is valuable in its own way and will be better suited to some individuals.
The most important takeaway is that, where finances and relationships are involved, it is crucial that both parties seek independent legal advice. If you would like to discuss your position and receive feedback on the advantages and disadvantages of a BFA, our experienced family lawyers can help.