Binding Financial Agreements and Financial Disclosure
A Binding Financial Agreement (BFA) sets out how the parties would like their property to be dealt with in the event of or following their separation and can be entered into either:
- before a married or de facto relationship begins [see s 90B for married relationships and s 90UB for de facto relationships];
- during a married or de facto relationship [see s 90C for married relationships and s 90UC for de facto relationships]; or
- after divorce or the end of a de facto relationship [see s 90D for married relationships and s 90UD for de facto relationships].
In order for a BFA to be binding, both parties must give full financial disclosure. As a result, if you plan to enter into a BFA it is essential that you understand exactly what financial information you must include for it to be enforceable by a court.
We have prepared this quick factsheet to set out your rights and obligations when giving financial disclosure and explain what property and resources you need to provide.
What Is Full Financial Disclosure?
Under the Family Law Act 1975, full financial disclosure means you need to give ‘full and frank’ (complete and honest) disclosure of your financial position, this will include details of any property you own or substantially control. Other financial matter you must disclose include:
- all earnings, whether from income/salary, returns from an investment property, share dividends or income from any other investment;
- all debts, including home loans, personal cards, HECS debts, credit cards and tax owed;
- financial resources, including superannuation, rights in a discretionary trust, life insurance policies or any likely inheritance;
- all earnings, property and financial resources that come to you indirectly, or via another person or beneficiary, such as your child or de facto partner;
- details of any property you have ‘disposed’ of (e.g. by selling, transferring, assigning or gifting it to someone else) in the year immediately before or after the separation; and
- the value of the assets at the time you are entering the BFA, not just a list of the assets.
It is often best to provide disclosure in the form of source material, such as superannuation statements, bank statements and property valuations.
Can I Limit the BFA to Certain Assets or Liabilities?
Although a BFA can be used to deal with certain assets or liabilities under, it raises doubt as to the extent of financial disclosure given. As a result, agreements that are limited, particularly if not everything is disclosed, are more likely to be set aside by the court.
What Property Do I Have to Disclose?
Family law and the courts broadly define property to include any property to which you are entitled. When preparing your BFA, you should disclose:
- as a general rule, any property you own worth $5000 or more, including vehicles, household furnishings, jewellery and artwork;
- cash or funds held in bank accounts;
- real estate you own, including overseas real estate;
- property held by a company ultimately controlled by you for your benefit;
- property held on trust by a third party for your benefit; and
- interest and/or shares in any company.
What About Superannuation?
Under the Family Law Act 1975, superannuation is treated as property. However, it is different from other types of property because it is held in trust. When it comes to splitting superannuation there are different laws which relate to how this can be done. For example, it is not possible to split a superannuation account with less than $5,000.
A BFA can include a superannuation splitting clause, however it is important to include full and accurate details of any superannuation funds of which you are a member, and to account values at the time of entering the BFA.
Do I Need to Get Formal Valuations?
Whilst you do not need to obtain formal valuations, any estimate of value must be genuine and reasonable. In the case of real property (such as houses, apartments, etc.), obtaining a market valuation is sometimes advisable. If the value of a business is often unknown, it may be a good idea to instead note the business’ turnover and asset value.
Not Sure If Something Needs to Be Disclosed?
If you are unsure whether something needs to be disclosed, it is best to always err on the side of more disclosure given the stringent disclosure obligations.
Our experienced legal team can assist you with drafting and reviewing Binding Financial Agreements. If you have any questions about a BFA, get in touch with our lawyers today by calling 03 8657 3751 or via email [email protected]