The Growing Trend Of BFA'S:
Protection, Risk and the Cost of Getting It Wrong
Financial Agreements, commonly called BFAs, “prenups” or “postnups”, are a growing trend, becoming increasingly popular in Western Australia. With people entering relationships later in life, buying property together, receiving inheritances and building businesses, many couples want greater certainty about what will happen if they separate.
A BFA can be made before, during or after a marriage or de facto relationship. If it is properly prepared and legally binding, it can prevent a court from deciding some or all of a couple’s financial and property matters. To be binding both parties must receive independent legal advice, and the agreement must satisfy certain requirements under the Family Law Act 1975.
That potential certainty is the main attraction, but it is also what makes a BFA risky. These agreements are complex. If they are not prepared properly, their consequences may be very different from what either person expected.
The Advantages of a BFA
There is no doubt a carefully drafted BFA by an experienced lawyer can be a fantastic document and can help a couple establish clear expectations. It may specify what happens to property brought into the relationship, future income, business interests, inheritances, windfalls, investments, debts and other financial resources.
For people with children from an earlier relationship, a BFA may form part of a broader asset-protection strategy. Business owners may also want to minimise uncertainty surrounding the future ownership or value of their business.
Most importantly, a good agreement can reduce the scope for conflict following separation. Instead of going into negotiations at an emotionally difficult time, the
couple has already decided how specified financial matters should be handled.
However, a BFA does not necessarily have to deal with everything. It can cover the entire financial relationship or only selected issues. That flexibility can be useful, but it can also create serious problems when important matters are accidentally left out.
Why Enter into a BFA When the Relationship Is Ending?
Although BFAs are commonly associated with the beginning of a relationship, they can also be useful when a marriage or de facto relationship is ending. If both parties have reached an agreement about their property, debts, financial resources or maintenance, a BFA may allow them to formally record that arrangement without asking a court to determine those issues.
A properly prepared agreement can clarify who keeps which assets, who assumes responsibility for specified debts, whether one party will make a payment to the other and whether maintenance obligations will continue. This may help the parties achieve greater certainty, put in place arrangements a court would have trouble approving, avoid future misunderstandings and bring their financial relationship to a more definite conclusion.
However, entering into a BFA during separation can involve difficult negotiations and significant consequences. Each party must receive independent legal advice and should carefully understand what rights they may be giving up. The Federal Circuit and Family Court of Australia confirms that financial agreements can be entered into after a marriage or de facto relationship and, if binding, can remove the Court’s jurisdiction over the financial matters they cover.
When Protection Becomes an Unexpected Debt
The risk is easier to see in a practical example.
“Daniel” owned a successful building business before beginning a new relationship. He was determined to protect the company, so the agreement focused almost entirely on ensuring that his partner could never claim an interest in it.
Daniel agreed that if the relationship ended, his partner would receive a fixed payment based partly on the value of their home and the length of the relationship. At the time the BFA was drafted, the amount seemed manageable. However, the agreement did not adequately address what would happen if the business later struggled, the property market changed or Daniel no longer had enough cash to make the payment.
Years later, the relationship ended while the business was experiencing serious cash-flow problems. The payment obligation remained, but Daniel did not have the money available. To satisfy what he had agreed to, he needed to borrow heavily and sell assets at a difficult time.
The BFA had protected the ownership of his business, but it had also created a substantial personal debt to his former partner. Daniel had focused on protecting himself from one risk without properly testing whether the agreement’s payment mechanism would remain affordable in different circumstances.
What If Your Partner Becomes Wealthier Than You?
People often approach BFAs by asking, “How do I stop my partner from taking what I have?”
That is understandable, but it is only half the question. What happens if your partner eventually has more than you?
Your partner might establish a thriving business, build a valuable investment portfolio, receive a significant inheritance or win Powerball. Meanwhile, you might reduce your working hours, make unpaid contributions to the household or support your partner’s career.
An agreement that appeared favourable when signed could prevent you from sharing in wealth created during a long relationship. A clause intended to protect your current assets may also exclude you from making claims against your partner’s much larger future asset pool.
A properly considered BFA should therefore examine several possible futures, not simply the financial circumstances existing on the day it is signed.
A BFA Should Be Reviewed Over Time
A BFA should also not be signed and forgotten. Couples can review it when major events occur, such as the birth of a child, the purchase of property, the creation of a business, an inheritance or a significant change in income.
However, updating an agreement is not as simple as crossing out an old clause or signing an informal note. The existing BFA will generally need to be formally terminated and replaced, with both parties receiving fresh independent legal advice. Unless that process is handled correctly, the couple may create uncertainty about whether the original agreement, the attempted amendment or both documents apply.
It can also be a very awkward conversation which may introduce conflict into a previously happy partnership.
Regular reviews can help identify whether the assumptions behind the original agreement remain accurate. They can also provide an opportunity to address new assets, debts, businesses, trusts or family circumstances before those changes become the subject of a dispute.
When the Agreement Leaves Things Out
A second case study demonstrates the dangers of incomplete drafting.
“Melissa” and “Aaron” obtained a relatively inexpensive BFA when they moved in together. The agreement listed their existing properties and savings, but it said little about the future.
During the relationship, they created a business, refinanced one property and used joint funds to renovate another. When they separated, the agreement could not simply be ignored because it appeared to deal with at least part of their financial relationship. At the same time, it did not clearly explain how their newer financial arrangements should be treated.
The issue was not as simple as saying, “The agreement is unclear, so we will forget about it.” Nor could the parties apply it with confidence or apply to the Family Court to resolve the issue. They faced the prospect of Supreme Court proceedings, with the additional expense and complexity of arguing a contract dispute.
At a time when they were separating and there was already tension, months of legal argument followed. Their lawyers disagreed about which assets were covered, how particular clauses should be interpreted and whether
some matters remained available for negotiation or court determination. The BFA had been intended to prevent a dispute, but its gaps became the centre of one.
The False Economy of a Cheap BFA
A BFA should not be treated as a standard form you download or generate with AI, then complete by adding a few names and figures. Cheap templates may fail to address the future, or even the present, including companies, trusts, windfalls, inheritances, debt, refinancing, children, illness, career changes, and the sale or replacement of assets.
The law surrounding financial agreements can be complex. Courts can set them aside in particular circumstances, but that does not mean an agreement can be cancelled merely because someone later dislikes the outcome. Challenging an agreement can itself require extensive legal work, with no guarantee of success.
Paying for careful drafting and genuinely independent advice may feel expensive when the relationship is happy. However, the cost can be modest compared with years of uncertainty, unanticipated debt or litigation over an agreement that was supposed to prevent those exact problems.
A good BFA does more than protect what you have today. It asks what could change, when will it be reviewed, who might become wealthier, what might be acquired, which debts could arise and whether the agreed outcome would still operate as intended.
When an agreement may affect everything you own now, and everything you may own in the future, “almost right” is not good enough. And it is certainly not the time to choose the cheapest quote.
The anecdotes above are fictional case studies provided for illustration only. This article contains general information and is not a substitute for legal advice about individual circumstances.
Susan Hewitt is the Principal at Bright Side Family Law, a non-litigious family law and mediation practice. Susan has worked as a lawyer and journalist for almost 30 years. She is an accredited collaborative lawyer and family-law mediator who is committed to helping families through their relationship breakdown in an honest, cooperative and respectful manner.
Comments