Published on May 4, 2022
Binding Financial Agreements vs Consent Orders
The breakdown of a marriage or de facto relationship usually requires the division of shared property. This process can be a straightforward division of household items (for instance, one person takes the refrigerator and the other takes the big-screen TV). Separating partners who can easily agree on asset division usually choose not to document this agreement. In that case, each party walks away trusting that the other party will not make a future claim on their assets.
Some former couples choose to formally record the terms of a property settlement in a Financial Agreement (commonly called a Binding Financial Agreement) or Consent Orders. This article compares these two legal instruments and explains which option is appropriate in different circumstances.
What is a Binding Financial Agreement?
A Binding Financial Agreement (or BFA) is a special form of contract between two people. It is a private agreement that does not need to be approved by the Federal Circuit and Family Court of Australia. However, a BFA is only binding when it is made according to the rules set out in the Family Law Act 1975 (Cth) (except for de facto couples in Western Australia, where the Family Court Act 1997 applies). Ironically, it is only if the parties create a BFA according to the terms of this legislation, will the agreement not be subject to the property division rules in the Family Law Act and Family Court Act.
A couple can actually make a BFA at any stage of a relationship. When a couple makes a BFA at the beginning of a relationship it is commonly referred to as a “prenup“. If it is made during a relationship it is referred to as a “cohabitation” agreement. This article focuses on BFAs that divide property at the end of a relationship.
How is a BFA made and what makes it legally binding?
There are basic rules that make any contract legally binding, but the Family Law Act contains additional rules for a BFA. A BFA is only legally binding when the parties follow these rules.
Perhaps the most important rule when it comes to making a BFA is that both parties must receive independent legal advice before signing. This advice needs to be truly independent, so it is essential that each party see a solicitor by themselves, and that they have time to consider the solicitor’s advice before they sign the agreement. Solicitors for both parties must produce certificates to confirm that they provided this advice. These certificates then form part of the BFA.
Both parties to a BFAs must provide full and frank disclosure of their financial affairs. The parties do this by exchanging details about all of their assets and liabilities.
When can a Financial Agreement be set aside?
The Family Law Act specifies certain grounds for the courts to set aside a Binding Financial Agreement. For instance, if the agreement is:
- Void, voidable or unenforceable;
- Obtained through fraud (such as through non-disclosure of a material matter);
- Designed to defraud or defeat a creditor;
- Based on unconscionable conduct; or
- Inclusive of unsplittable superannuation interest.
A BFA can also be set aside if there was evidence that the legal practitioner who provided one of the parties with advice was not independent. The courts have previously set aside BFAs because one party paid the retainer for both solicitors, or was merely waiting nearby while the other party saw their lawyer.
The Courts have also set aside BFAs that were made too close to the date of a wedding when there was a threat that the wedding would not go ahead unless the BFA was signed. In those instances (sometimes referred to as “ink on the wedding dress” cases), the Courts found that the pressure of an imminent wedding created a form of duress.
Advantages of a Binding Financial Agreement
The major advantages of a BFA are set out below:
The court does not scrutinise BFAs
As a private contract, a BFA is not a matter of public record and the courts do not have to approve the agreement. This makes a BFA an attractive option for individuals who value their privacy. Also, the parties can complete a BFA quickly, as soon as the documents are drafted and both parties consult solicitors.
A BFA can include provisions that the courts typically avoid including in consent orders. For instance, the courts encourage a complete severing of the financial relationship between a former couple. If a couple wish to continue to co-own a business, they can use a BFA to record their property division while maintaining the same legal ownership structure.
BFAs do not need to be “just and equitable”
In fact, the parties to a BFA can agree to a property division that the courts would not endorse. There are many reasons why a couple might agree to divide property in a way that is not “just and equitable”. For instance, one party may be motivated to take a less favourable division in order to finalise matters swiftly and discretely.
No need for discovery
The parties to a BFA can save considerable time because there is no requirement for discovery. Instead, the parties rely on each other to give full financial disclosure without the need for documents to be exchanged showing that the claims are true.
This can save considerable time and expense, especially when one or both parties have complex financial arrangements, and would otherwise have to engage accountants and/or solicitors to fully documenting their finances.
BFAs can encompass spousal maintenance
Another advantage of a BFA is that it can address both property division and spousal maintenance. For instance, the parties can agree as part of a BFA that neither party will pursue the other for spousal maintenance in the future.
Disadvantages of a Binding Financial Agreement
The expense of a BFA is often cited as the major disadvantage of this approach. A BFA is a fairly complex document that needs to be drafted according to specific rules. Both parties must receive independent and extensive legal advice. As a result, this form of agreement is typically more costly than Consent Orders.
What are Family Court Consent Orders?
Family Court Consent orders are orders of the Federal Circuit and Family Court of Australia. Although they are made by the Court, these orders are drafted and agreed by the parties themselves, usually via negotiations between their solicitors.
How are Consent Orders made and when are they legally binding?
A Consent Order is made by a judicial officer (a registrar or judge) of the Federal Circuit and Family Court of Australia. The parties provide the Court with a draft copy of their financial agreement and ask the Court to make the document legally binding. Once the orders are made, the Court can enforce them if there is a breach in the future.
Before issuing the orders, the Court makes a decision on a final basis as to whether the Consent Orders are “just and equitable” in accordance with the Family Law Act 1975 or the Family Court Act 1997 (WA).
These orders are legally binding as soon as they are issued by the Court. However, they can be set aside in limited situations.
When can consent orders be set aside?
The Court is typically reluctant to set aside consent orders as they are intended to finalise property division. Generally, the Court will only set aside or vary consent orders if:
- The parties agree to the alteration and apply on this basis;
- There was a miscarriage of justice (because of fraud, duress, false evidence, or suppression of evidence);
- New hardships or difficulties have arisen over the care of a shared child that make it hard to carry out the order;
- Due to new circumstances, it is impracticable for the parties to carry out the court order;
- One of the parties has not fulfilled their obligations and it is just and equitable to set aside the order; or
- A proceeds of crime order affects one of the parties.
Advantages of Consent Orders
In comparison to a BFA, a Consent Order can be a simple agreement. In fact, the spouse parties can even write a Consent Order themselves. However, as the Court must approve the document, it is wise to have an experienced family lawyer at least review the draft order.
These agreement are also relatively straightforward to enforce as the Court has already endorsed the agreement. The Court considers a failure to comply with a consent order to be a serious breach and will immediately order enforcement.
Disadvantages of Consent Orders
Orders must be “just and equitable”
Unlike a BFA, the Court must review consent orders and will only endorse orders that are “just and equitable”. This does not mean that the order must divide property 50/50, but the terms must be fair to both parties. In addition, the order must fall within the possible range of outcomes that might result from a court hearing. Basically this means that consent orders need to be reasonably close to what a judge would order for a property division.
Consent Orders do not finalise all financial matters
Consent Orders do not prevent either party from seeking spousal maintenance in the future. This could be a significant disadvantage of Consent Orders in comparison to a BFA.
Lack of flexibility
Once the Court makes a final Consent Order, it is very difficult to set aside or vary the terms.
Differences between a BFA and Consent Orders
Separating couples use BFAs and Consent Orders to achieve the same basic goal: a legally binding division of finances. Despite this similar focus, they are very different instruments. One is not better than the other, but there are some circumstances where one is the more appropriate choice. The key differences between the two instruments are set out below:
Independent legal advice
A judicial officer must review Consent Orders to ensure that they are just, equitable, and enforceable. This provides a safety-net for litigants without legal representation as the Court will reject an unjust agreement. This means that Consent Orders can be far less expensive than a BFA, which requires both parties to seek independent legal advice. However, as the Court will not endorse Consent Orders that contain any serious technical deficiency, the parties should engage an experienced family law solicitor to draft Consent Orders.
Enforceability
As Consent Orders are Court issued, the Court will automatically enforce the agreement if one of the parties does not comply. This differs from a BFA, in that you need to start a court action to enforce the contract. The outcome is likely to be the same, but it can be an anxious process waiting for the Court to agree that the BFA is binding. If the Court finds that the BFA is defective, it can decline to enforce the agreement.
Flexibility
A BFA, as a private contract, offers far more flexibility than Consent Orders. A BFA has the flexibility to include any issue that is important to the former couple, even if the Court would not consider the issue appropriate for inclusion in Consent Orders. For instance, a BFA could include non-derogatory clauses, preventing ex-partners from making negative statements about each other publicly.
Disclosure
Both BFAs and Consent Orders require “full and frank disclosure” of each party’s finances. Basically, the parties cannot make an agreement about the division of property unless they understand each other’s income and assets. If one party conceals income or assets, or overstates outgoings, then the other party cannot make an informed decision about whether to enter into the agreement. Where the parties have not been full and frank in their disclosure, the Court may order that the BFA or Consent Order is set aside.
The BFA differs from the Consent Orders in that the parties do not have to undergo discovery to prove that their disclosures are factual. That is, they do not need to document their claims about financial matters. Therefore, if one or both parties have very complex financial arrangements, a BFA allows that party to avoid the additional effort and expense that would be necessary during discovery.
Spousal Maintenance and Financial Resources
A BFA can include agreement over spousal maintenance and superannuation entitlements, or any other financial issue except child support. As Consent Orders cannot encompass spousal maintenance, a BFA may be a better choice for a couple who want to wrap up all financial matters as soon as possible.
Should I choose a BFA or Consent Orders?
Whether you should proceed with a BFA or consent orders depends on what you want to achieve and avoid in your property settlement. In general, a BFA is the right instrument if:
- Both parties agree to a financial division that is not strictly fair and equitable; and/or
- Privacy is important to the parties; and/or
- The parties wish to include spousal maintenance and other matters that are not usually incorporated into Consent Orders.
Consent Orders are usually the right choice if:
- The parties have straightforward financial arrangements; and
- Wish to reach a fair agreement; and
- Want to minimise legal fees.
Unified Lawyers Can Help
Contact Unified Lawyers on 1300 667 461 for help if you need a Binding Financial Agreement or want to apply for Consent Orders.
Our family lawyers are specialists who can assist you with any family law matter.
Published on May 4, 2022
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