Introduction
Binding Financial Agreements (BFAs) can provide significant financial security and clarity for couples. However, these agreements must be meticulously prepared and executed to be effective. While they are ‘watertight’ if properly done, the fact that it is labour-intensive to meet all of the statutory high-jumps make them relatively easy to be found not binding. There are many cases in the Court’s reported decisions where simple, innocent typographical errors have led to a BFA being set aside. This article explores common pitfalls in creating BFAs and offers practical advice on how to avoid them.
For a general overview of BFAs, their benefits, and how they work, you can refer to our detailed article.
Incomplete or Inaccurate Financial Disclosure
One of the most critical aspects of a BFA is full and frank financial disclosure. Failure to disclose all assets, liabilities, and financial resources can lead to the agreement being invalidated.
How to Avoid It
- Ensure all assets, debts, and financial interests are documented thoroughly.
- Regularly update the agreement to reflect any significant changes in financial circumstances.
Lack of Independent Legal Advice
For a BFA to be legally binding, both parties must receive independent legal advice. This ensures that each party understands their rights, the implications of the agreement, and the fairness of its terms. In practice, it’s beyond dangerous for the parties to use separate solicitors from the same law firm.
How to Avoid It
- Each party should engage, visit & pay their own lawyer. Lawyers experienced in family law are essential; this is not your average ‘walk-in walk-out’ document review service. Note: the words lawyer and solicitor are synonymous (two words meaning the same thing) in Australia.
- Document the legal advice received, including the date and nature of the advice. Your solicitor should do this for you, for their own sake if not yours.
Poorly Drafted Agreements
A BFA must be clearly written and precisely detailed. Ambiguities or vague terms can lead to disputes and potentially render the agreement unenforceable.
How to Avoid It
- Work with a lawyer to draft a clear, comprehensive agreement. It need not be 100 pages. Short is fine, as long as the document captures everything it must and should.
- Avoid using generic templates; these create very fertile grounds for disputes in the future. Tailor the agreement to your specific circumstances.
Ignoring Updates or Changes in Circumstances
Life circumstances change and BFAs should be updated accordingly. Failing to revise the agreement to reflect significant life events can lead to expensive legal challenges. Think of your BFA as you would your Last Will & Testament; keep it current.
How to Avoid It
- Review and update the BFA regularly, particularly after major life events like marriage, the birth of a child, permanent or substantial injuries, or significant financial changes.
- Schedule periodic reviews with your lawyer to ensure the agreement remains relevant and enforceable.
Coercion or Duress
A BFA must be entered into voluntarily by both parties. If there is evidence of coercion or duress, the agreement can be set aside by the court.
How to Avoid It
- Ensure both parties have ample time to consider the agreement before signing.
- Don’t drive your partner to their appointment with their own lawyer, or find their lawyer for them or pay their lawyer yourself. Generally, you wouldn’t usually speak to their lawyer at all.
- Maintain open, honest communication between the parties throughout the process to ensure mutual consent and understanding.
Conclusion
Creating a Binding Financial Agreement requires careful consideration, detailed preparation, and professional legal assistance. By avoiding common pitfalls such as incomplete financial disclosure, lack of independent legal advice, poorly drafted terms, ignoring updates, and coercion, couples can create a robust and enforceable agreement. Always seek professional legal advice to ensure that your BFA meets all legal requirements and serves your financial interests effectively.
For tips on navigating the emotional conversations around BFAs, see our article on Navigating the Emotional Conversations Around Binding Financial Agreements.
The Benefits of Binding Financial Agreements
A well-drafted BFA can help you protect your assets and avoid lengthy disputes in the event of a separation. For a deeper understanding of potential issues and how to navigate them effectively, please read our article on Common Pitfalls in Creating Binding Financial Agreements and How to Avoid Them.
Addressing Emotional Aspects
Navigating the emotional conversations around BFAs can be challenging but is essential for a smooth process. To learn more about managing these discussions effectively, check out our guide on Navigating the Emotional Conversations Around Binding Financial Agreements.
To ensure your Binding Financial Agreement is free from common pitfalls, consult our expert team at Bennett Carroll. We offer tailored advice in Brisbane, Gold Coast, Ipswich and Sunshine Coast. Call 1300 334 566 or email info@bcglaw.com.au for professional assistance with your prenup agreements.
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