Binding Financial Agreements
How Binding Financial Agreements protect couples from future financial disputes
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How do I write my own will?Dormers does not recommend anyone writes their own will.
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Why should I have a will?If you don’t have a will, then you have no executor and therefore, no one is authorised to represent your estate once you die. An application for Letters of Administration can also cost thousands of dollars and there is complexity around the process. The other thing to remember is that someone you don’t even like or know could end up being your Administrator. If you leave a will, then you can say who manages your estate when you die.
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But I don’t have any assets, what’s the point in having a will?These days, everyone at least has superannuation so there is some risk that may fall within notional estate, in NSW at least. Most super policies also contain life insurance, which can be substantial. This can become part of your estate in some cases.
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What is testamentary capacity?In order for a will to be valid, the will-maker must have testamentary capacity. This means that the will-maker must: understand the nature of making a will and the effect of making a will understand, at least in general terms, the nature and extent of the property of which they are disposing be aware of those who might be thought to have a claim upon their testamentary bounty have the ability to evaluate and discriminate between the respective strengths of the claims of such persons
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Do I truly have testamentary freedom?You are free to set out your wishes and how you would like your assets to be distributed after death in a will. Such a freedom, however, is not absolute in Australia.
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What are mutual wills?Mutual wills can also be called mutual will contracts. Mutual wills form a legally binding contract between two people. It involves two wills being drafted in terms that both parties agree to, and it prohibits either party from revoking or amending their will unless the other party agrees. As a result, when one person dies, both wills can no longer be amended. See also: The Curious Case of the Mutual Will
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What is the difference between a “normal” will and mutual wills?Usually, normal wills are revocable. That means it can be cancelled and you can make a new one. However, mutual wills can only be revoked while both parties are still alive, have capacity, and when there is agreement between the parties. Therefore, mutual wills contain an express or implied agreement not to revoke the will after the death or incapacity of either party.
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What is an example of a mutual will?An example may be where a couple makes an agreement that when the surviving partner dies their property will go to a specified beneficiary. Another example may only deal with the will of one of the parties. For example, when a housekeeper agrees to work for free on the basis that their employer will leave the house and contents to them.
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When would I be involved in a mutual will?A common scenario is when you wish to gift your estate to your surviving spouse to ensure your wealth passes on to your children when your surviving spouse dies. A mutual will would ensure that when you die, your surviving spouse cannot amend or revoke the will. This means your children will become the “ultimate beneficiaries” of your estate. In another case, you may wish to gift your estate directly to your children without gifting anything to your surviving spouse. In such a case, a mutual will could prevent your surviving spouse from making a family provision claim against your estate.
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Are mutual wills confined to husbands and wives?No. Mutual wills can be made between any two people who wish to bind each other to an estate plan.
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What happens if one party breaches the mutual will?If your surviving spouse breaches the mutual will, you can reply on the mutual wills contract to obtain some type of compensation.
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Can you give me an example of how a mutual will would work?Imagine Clare and John are married. They each have a daughter from a previous marriage. They make wills to agree to leave their assets to each other. In such wills, they agree the estate of the surviving spouse would be equally divided between Clare’s daughter and John’s daughter. John dies a few years later and his estate passes to Clare. At the time of John’s death, Clare’s estate is held on a constructive trust. (Constructive trust is an arrangement where a person holds property as the owner for the benefit of at least one beneficiary). This means that Clare must deal with the assets in the estate in the way that was outlined in the mutual will.
How to know if a BFA is right for you?
They can also play a crucial role in:
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Couples with significant assets or financial disparity;
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Business owners and professionals;
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People entering a second marriage or de facto relationship; or
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Those wanting to avoid court proceedings in the event of a separation.
If you’re not sure whether a BFA is suitable for your situation, speaking with an experienced family lawyer can help clarify your options. Whether you are entering a new relationship, planning for the future, or dealing with the aftermath of separation, Dormer Stanhope is here to guide you with clarity and confidence.
Protecting Business Interests and Inheritance with a BFA
If you own a business, hold interests in trusts or companies, or expect to receive a significant inheritance, a BFA can be a strategic way to preserve these assets.
They can also play a crucial role in:
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Estate planning
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Succession planning for family businesses
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Structuring future wealth protection across generations
The next question, why should you consider a BFA?
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Clarity and Protection - A BFA removes ambiguity. Both parties know what will happen with property, superannuation, and finances if the relationship ends.
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Reduces Conflict - With terms agreed in advance, couples can avoid the stress and expense of litigation over property division or spousal maintenance.
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Predictability - By setting out financial expectations early, BFAs help couples plan for the future, including investments, children, and retirement.
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Asset and Business Protection - BFAs are particularly valuable where one or both parties have significant personal assets, family wealth, or business interests that they wish to protect.
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Useful for Blended Families or Second Relationships - BFAs can safeguard inheritances or children’s future entitlements from a previous relationship.
It is crucial to note that while BFAs offer stability, there are situations where they can be challenged and set aside by the Court. These situations include:
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Fraud or Non-Disclosure: Failing to fully disclose assets or income at the time of the agreement.
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Undue Influence or Pressure: If one party was coerced or didn’t have a genuine opportunity to negotiate.
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Lack of Independent Legal Advice: Legal advice must be specific and adequate. A 10-minute meeting is unlikely to satisfy this requirement.
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Significant Change in Circumstances: Especially where the care of children is concerned and one party may suffer hardship if the BFA is upheld.
How do you prevent this from happening?
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Give Full Disclosure: Be transparent about your financial situation.
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Engage Quality Legal Advice: Both parties must seek independent, experienced family law advice.
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Aim for Fairness: Agreements skewed heavily in one party’s favour may raise red flags.
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Update as Needed: Life changes; as such, your BFA should be reviewed when circumstances change.
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Document the Process: Keep records of legal advice, negotiations, and disclosures.
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Use Clear Language: Avoid vague or complex wording that may cause confusion later.
But how do they work? And are they worth it?
A Binding Financial Agreement is a legally recognised contract under the Family Law Act 1975 (Cth) that allows couples, married, de facto, or separated, to agree in advance on financial matters. These include:
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Property settlement
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Spousal maintenance
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Division of assets and liabilities
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Financial management during the relationship
BFAs can be entered into:
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Before cohabitation (for de facto couples)
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Before marriage (as a prenuptial agreement)
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During a relationship or marriage
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After separation or divorce
For a BFA to be legally binding, both parties must:
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Provide full and frank financial disclosure;
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Receive independent legal advice; and
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Sign the agreement voluntarily, without coercion or undue influence.
When done properly, a BFA can prevent costly legal battles and provide financial certainty in an emotionally difficult time.
Everything You Need to Know About Binding Financial Agreements
Binding Financial Agreements (BFAs) have become popular for couples looking to manage their financial arrangements, whether they’re planning to live together, get married, or have already separated. Commonly referred to as “prenups”, BFAs offer clarity, certainty, and peace of mind by outlining how assets, liabilities, and financial responsibilities will be dealt with during the relationship or in the event of separation.