A different use for BFAs?

with No Comments

Binding Financial Agreements (BFAs – sometimes colloquially known as “pre-nups”), are usually designed to protect assets owned by one member of a couple from a claim by the other member of the couple in the event of separation.

Typically, BFAs protect particular assets, or classes of assets from division and often provide that spousal maintenance will not be payable or limit the amount which is payable.  For this reason, they are particularly attractive to clients who have significant assets at the beginning of a relationship, or expect to inherit or be given assets during the relationship.

In order to be binding, both members of the couple must have received independent legal advice.  Most lawyers will not “sign off” on a BFA unless they have both given their client advice in writing, and received a warranty from the lawyer on the other side to the effect that that lawyer has also provided their client with advice in writing and will keep a copy of that advice.  For this reason, and because of the other technical requirements of BFAs, there is significant expense involved in the drafting and finalising of one.

It is perhaps not surprising then that lawyers rarely receive instructions to draft BFAs which are designed to protect the more financially vulnerable member of a couple.  And yet, a BFA is a very effective tool for doing that.  It can create enforceable obligations in relation to property adjustment, superannuation splitting and spousal maintenance such that the financially vulnerable party gets more than he or she would if the matter went to Court and without all the costs of having to litigate.

Given what we know about the huge (and lifelong) impacts on women’s earnings as a result of childbirth and childrearing, it is perhaps surprising that more women (and particularly those who are contemplating an extended period out of the paid workforce), do not seek to secure their financial position in this way.

Some might say that the Family Law Act ensures that the interests of such women are adequately protected.  I would disagree.  While the fact that one member of a couple has lower income and earning capacity than the other is the basis for the first receiving a greater share of the property pool, the percentage adjustments usually negotiated rarely even account for three years of an income differential.  Further, spousal maintenance claims are often strongly resisted, and the cost of bringing proceedings is a significant deterrent to pursuing such a claim.

BFAs designed to protect the more financially vulnerable party might, for example, include clauses to achieve the following:

  1. An equalisation of after-tax incomes when account is taken of child support paid and received over a five year post-separation period.  This could occur through the provision of spousal maintenance payments or an additional equivalent percentage of the non-superannuation pool paid as a lump sum.
  2. Continuing occupation of the former matrimonial home by the primary carer of children until those children reach a particular age or stage (with equitable – not necessarily equal – sharing of costs).
  3. Lump sum (or percentage) payments on separation when the following conditions (or any of them) have been met during the relationship: birth of children; resigning from paid work; reduction from full-time to part-time work; transfer to less remunerative employment; other party working overseas for periods of three months or more; agreeing to remain in the same geographical location to enable shared post-separation parenting.
  4. Even more controversially, a BFA might provide that particular conduct is to have an impact on the property outcome.  These might include family violence by one towards the other, “waste” of income and assets through gambling, and, potentially, other kinds of conduct.

These kinds of clauses are relatively untested, and lawyers will need to give very careful consideration to, and advice in relation to, their enforceability.

It is important to remember that BFAs can be entered into at any time before, during or after a de facto relationship is formed, or, the parties are married.  The point of deciding to have a child is likely to be financially critical, particularly for the mother, and couples might consider entering into a BFA at that stage.  Couples sometimes separate and then reconcile.  Again, couples might consider entering into a BFA if and when they consider reconciliation.

Juliet Behrens is a Senior Associate at Dobinson Davey Clifford Simpson, 18 Kendall Lane, NewActon, Canberra ACT 2601 and can be contacted on (02) 6212 7600.

Leave a Reply

Your email address will not be published. Required fields are marked *