Financial Agreements

Binding Financial Agreements (BFAs)

AN INTRODUCTION

The terms “financial agreement”, “binding financial agreement” or “BFA” are often used loosely by lawyers and non-lawyers alike in reference to contractual agreements which parties may enter under the Family Law Act (1975) and other legislation such as the Child Support Assessment Act (1989).

As described below, there are maybe ten different variations of BFAs which parties may sign up to.

Among the most popular BFAs, there are two categories:

  1. Cohabitation agreementswhere parties make a contract about the future regarding their property and how it may be divided if they separate;
  2. Property settlementswhere parties have already separated and wish to formalise legally the division of their assets.

If you are considering singing up into a BFA and would like more information or to make an appointment in either our Canberra or Queanbeyan office please contact Carlos Turini:

p: +61 2 6206 1300 | e: cturini@elringtons.com.au

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What is a cohabitation agreement and why should I get one?

What are “financial agreements”, “binding financial agreements” or “BFAs”?

The terms “financial agreement”, “binding financial agreement” or “BFA” are often used loosely by lawyers and non-lawyers alike in reference to contractual agreements which parties may enter under the Family Law Act (1975).  When using these terms, maybe one specific meaning is intended. However, there are various alternative agreements which may be entered under the Act.

In this article we look at one specific type of BFAs: “cohabitation agreements”.

Cohabitation agreements

A cohabitation agreement may be defined as a contract between two parties which makes provision about how to divide their assets if they separate in the future.

Parties to a cohabitation agreement are contracting out of the provisions under the Family Law Act which would otherwise give them rights and entitlements against each other for a property settlement. Instead, they wish for their contract to provide what are their rights and entitlements against each other.

A cohabitation agreement may cover all assets of the parties or some of their assets.

If you would like more information or to make an appointment in either our Canberra or Queanbeyan office please contact Carlos Turini:

+61 2 6206 1300 | e: cturini@elringtons.com.au

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[1] https://elringtons.com.au/2011/03/prenuptial-agreement/

[2] Frequently, parties agree to a clause in the agreement that if they acquire real property jointly, they will own it as tenants in common (not joint tenants) and each party’s entitlement to the real property under the BFA will be equivalent to the share of title they have – 30%, 40% etc;

[3] Thorne v Kennedy [2017] HCA 49 (8 November 2017) at Paragraph 56;

[4] Thorne v Kennedy [2017] HCA 49 (8 November 2017) was a case where the Trial Judge declared a pre-nuptial agreement void and set it aside as she concluded that the husband applied undue influence on the wife to sign it. The Judge described, among other things: the wife’s “…emotional preparation for marriage, and the publicness of her upcoming marriage.” Significantly, the High Court sided with the Trial Judge decision and, in the process, overruled the Full Court of the Family Court which would have allowed the cohabitation agreement to stand;

[5] Family Law Amendment Act 2000 (which took effect from 27 December 2000);

[6] See Thorne v Kennedy [2017] HCA 49 (8 November 2017) referred to in (2) above; see also Wallace & Stelzer and Anor [2013] FamCAFC 199 (‘the pole dancer case’);

[7] See section 90G and section 90UJ of the Act;

[8] See section 90K and section 90UM.

Stamp Duty & Capital Gains Tax Concessions In Family Law Property Matters

By Carlos Turini – Family Law Specialist

There are many good reasons why former spouses should formalise legally their property settlement including that they may be exempted from paying stamp duty which is otherwise payable for the transfer of title to their real property, cars and shares.

They may also be exempted from paying capital gains tax when they sell the home they formerly owned together.

These exemptions normally represent savings of tens of thousands of dollars.

The exemptions will apply to married couples and their children and to partners of a de facto relationship and their children.

From 1 July 2009 the marriage or relationship breakdown rollover is extended to same-sex couples.[1]

The exemptions are available if the parties enter into consent orders or a financial agreement under the Family Law Act 1975.

Stamp Duties exemptions in New South Wales

Part 7 of the Duties Act 1997 (NSW) details the exemptions applicable to the payment of duty for certain transactions including the transfer of title transfer to property between former spouses or between former spouses and their children.

The transfer of the property of a trust to one of the spouses may also be exempted from stamp duty.

Importantly, in order to be entitled to the exemption, the parties must enter into a legal document which is recognised under the Act as appropriate including:

  • Orders made under the Family Law Act including consent orders; or
  • A financial agreement

The Chief Commissioner of Stamp Duties (NSW) also has the discretion to accept other form of agreements provided that the Commissioner is satisfied that that the agreement was made “for the purpose of dividing matrimonial property as a consequence of the dissolution, annulment or breakdown of the marriage”.

The easiest way to obtain the exemptions is for the parties to enter into consent orders or a financial agreement. Such documents if properly drafted will attract the exemptions without the need for the Commissioner’s discretion in order to be approved.

Stamp Duties exemptions in Australian Capital Territory

Similarly, in the Australian Capital Territory, former spouses may be exempted from paying stamp duty in relation to the transfer of title to their property if made as part of consent orders or a financial agreement under the Family Law Act 1975 (Cth) or the Married Persons Property Act 1986.

Capital Gains Tax exemptions

As a general proposition, the sale of assets such as real estate, shares or managed fund investments attracts a tax liability on the capital gain made on the sale. There are some exemptions, for example, on the sale of the matrimonial home.[2]

In relation to family law matters, a party who acquires sole title to the former matrimonial home in his/her own name as part of a formal family law property settlement will normally be exempted from paying capital gains tax when that party sells the property. There are numerous considerations even in that simple scenario including, for example:

(1)   Whether the proprietor has continued to use the property as the main residence;

(2)   Whether that party used the home also to run his/her business;

(3)   The title to the real property was transferred from the party as an individual to an entity such as a trust or a super fund

Other more complex family law scenarios which may attract relief from capital gains tax may relate, for example, to investment properties. If title to an investment property is transferred to one of the parties (rather than an entity) as part of a family law property settlement, that party may be entitled to “roll over “relief or postponement of the capital gains tax liability.

Family lawyers are not normally tax experts and it is important that parties involved in a family law property matter obtain appropriate advice. In addition to obtaining legal advice from a family law expert, it is important to obtain taxation advice from their accountant and or their registered financial adviser[3] about the tax implications of the family law property settlement that they have in mind.

First Home Owners Grants Entitlements and Family Law Property Settlements

In addition, there are concessions offered in the ACT to persons who previously received a First Home Owners Grant but have since transferred title to the property as a result of a family law property settlement – See: ACT Government Concession scheme

For more information or to make and appointment in either our Canberra or Queanbeyan office please contact:  Carlos Turini http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg

e: cturini@elringtons.com.au | p: 02 6206 1300


[1] 1. Marriage or relationship breakdown and transferring of assets  – https://www.ato.gov.au/general/capital-gains-tax/relationship-breakdown/agreements-the-rollover-applies-to/

[2] There are numerous considerations regarding such exemptions including, for example, whether the property was being used also to operate a business.

[3] Registered with the Taxation Practitioner Board.

When can a Pre Nuptial Agreement be set aside?

FAMILY LAW ACT 1975 – SECT 90K

Circumstances in which court may set aside a financial agreement or termination agreement

(1)  A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:

(a)  the agreement was obtained by fraud (including non-disclosure of a material matter); or

(aa)  a party to the agreement entered into the agreement:

(i)  for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or

(ii)  with reckless disregard of the interests of a creditor or creditors of the party; or

(ab)  a party (the agreement party ) to the agreement entered into the agreement:

(i)  for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or

(ii)  for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or

(iii)  with reckless disregard of those interests of that other person; or

(b)  the agreement is void, voidable or unenforceable; or

(c)  in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or

(d)  since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or

(e)  in respect of the making of a financial agreement–a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or

(f)  a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or

(g)  the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.

(1A)  For the purposes of paragraph (1)(aa), creditor , in relation to a party to the agreement, includes a person who could reasonably have been foreseen by the party as being reasonably likely to become a creditor of the party.

(2)  For the purposes of paragraph (1)(d), a person has caring responsibility for a child if:

(a)  the person is a parent of the child with whom the child lives; or

(b)  a parenting order provides that:

(i)  the child is to live with the person; or

(ii)  the person has parental responsibility for the child.

(3)  A court may, on an application by a person who was a party to the financial agreement that has been set aside, or by any other interested person, make such order or orders (including an order for the transfer of property) as it considers just and equitable for the purpose of preserving or adjusting the rights of persons who were parties to that financial agreement and any other interested persons.

(4)  An order under subsection (1) or (3) may, after the death of a party to the proceedings in which the order was made, be enforced on behalf of, or against, as the case may be, the estate of the deceased party.

(5)  If a party to proceedings under this section dies before the proceedings are completed:

(a)  the proceedings may be continued by or against, as the case may be, the legal personal representative of the deceased party and the applicable Rules of Court may make provision in relation to the substitution of the legal personal representative as a party to the proceedings; and

(b)  if the court is of the opinion:

(i)  that it would have exercised its powers under this section if the deceased party had not died; and

(ii)  that it is still appropriate to exercise those powers;

the court may make any order that it could have made under subsection (1) or (3); and

(c)  an order under paragraph (b) may be enforced on behalf of, or against, as the case may be, the estate of the deceased party.

(6)  The court must not make an order under this section if the order would:

(a)  result in the acquisition of property from a person otherwise than on just terms; and

(b)  be invalid because of paragraph 51(xxxi) of the Constitution.

Pre Nuptial Agreements

The term “prenuptial agreement” is generally well understood.  It may be defined as a legal agreement between two parties entered into before their marriage that makes provision for their assets and financial resources in the event of a breakdown of the marriage.

The Family Law Act 1975(Cth) recognizes pre-nuptial agreements and makes specific provision for such agreements.  While most people are aware of the concept of pre-nuptial agreements, many may be unaware that the same legislation makes provision for similar financial agreements to be entered into between spouses during the marriage or after separation.

Parties in ‘de facto’ relationships, same-sex relationships and ‘domestic relationships’ (which include, for example, a carer and the person they care for, whether they are related or not) may also enter into similar legal agreements before, during or after cohabitation under the Family Law Act.

The agreements entered into pursuant to the provisions of the Family Law Act are generally known as “financial agreements” or “binding financial agreements”.

Whenever parties to a relationship enter into such financial agreements, the intention is to make clear provision about their assets, financial resources and their future finances in the event that the relationship ends and to avoid the possibility of a dispute and/or litigation or to limit the scope of any possible dispute and/or litigation.

Where there has been a breakdown of a relationship, an existing financial agreement will operate to remove or limit the jurisdiction of the courts, whether it is the Family Court or the State or Territory Courts. The Courts will not have their usual powers to order a redistribution of assets of the relationship, or, if maintenance is dealt with in the financial agreement, to make orders as to maintenance payable to either party.

Can a financial agreement be set aside?

A court can declare the agreement invalid, and set it aside. The situations in which that is possible are provided at Section 90K (married couples) and Section 90UM (de facto couples) of the Family Law Act.

In order for a financial agreement to be binding in Australia, it is compulsory that both parties seek independent legal advice…

Entering into a financial agreement is an action that may have a momentous effect on one’s future.  In Australia, in order for a financial agreement to be binding, it is compulsory that both parties seek independent legal advice, detailing the effect of the agreement on the rights of the party, and the advantages and disadvantages to the party of making the agreement.

It is important to obtain legal advice to ensure that your rights are adequately protected when entering into a financial agreement, and that the technical and general legal requirements are complied with.  We at elringtons are experienced in providing advice regarding financial agreements and in drafting such agreements.  Please contact our office for further information regarding financial agreements and other family law matters.

For more information or to make an appointment in either our Canberra or Queanbeyan office please contact the Family Law Team:

p:  (02) 6206 1300 | e: cturini@elringtons.com.au