As social norms have changed, our approach to cohabiting has changed profoundly. Census research shows that in 1986, just 6% of all couples were cohabiting. However, the proportion has steadily increased across the years, with records showing that 12% of couples were cohabiting in 2001 and 18% in 2016.
The proportion of marriages that were preceded by cohabitation has also increased since the mid 1970s. Sixteen per cent of marriages in 1975 were preceded by cohabitation. The proportion was 81% in 2017, and the rate appears to have been stable at around 80% in the last few years.
Many cohabiting couples share assets and finances, are in a de facto relationship, and may be subject to a property claim in the event of separation.
As a result, many people who are living together are now considering whether to enter into a binding financial agreement to protect their assets. A binding financial agreement ('BFA') is an agreement that sets out how the assets and liabilities of a couple are to be distributed if the relationship breaks down.
So, is it appropriate for people who are in a relationship and living together to enter into a binding financial agreement to protect their assets?
Is it worth having a BFA?
A BFA can be a very useful tool for couples who wish to promote harmony and avoid disputes in the event of a relationship breaking down. If the BFA meets the legal requirements (addressed below), it can provide a way to guarantee how the assets of a relationship are to be dealt with following separation. This can allow the parties to avoid the cost, uncertainty, and emotional burden of legal proceedings in the event of separation.
A BFA can be particularly useful in circumstances where one of the parties has substantial assets and wishes to quarantine these from the other party in the event of a separation.
If the parties are willing to engage in open and mature discussions about their finances and plan for the possibility of a separation, it is undoubtedly worth considering a BFA.
When is a BFA not binding?
It is important to note that the Court has the discretion to find that a BFA is not binding upon the parties, should one of the parties contest the validity of the BFA.
There are several grounds upon which a BFA can be found to not be binding, including:
Failure to Obtain Independent Legal Advice
One of the key elements of a BFA is that each party must obtain sufficient independent legal advice. This means that each party must have their own solicitor, and that the advice that each party receives from their solicitor must be sufficient.
This issue was glaringly addressed in the recent matter of Kaimal & Kaimal  FamCA 971. In this matter, the wife's solicitor had attended to reading the terms of the agreement to the wife and told her that is was binding. However, the solicitor offered no further advice on the terms of the agreement. The court found that this did not amount to sufficient independent legal advice and found that the BFA was not binding.
It is therefore extremely important that each party not only obtain advice, but that this advice be sufficient.
Non-Disclosure of your assets/financial resources
One of the most common grounds upon with a BFA can be set aside is that the agreement was obtained by fraud, including non-disclosure of a material matter.
When entering a BFA, each party is required to provide full disclosure of their direct and indirect financial circumstances. This would typically include:
1. All earnings, whether from income/salary, returns from an investment property, share dividends, or income from any other investment
2. All funds held in bank or credit accounts
3. Values of any property held, including real property
4. All debts, including home loans, personal loans, credit cards and tax owed
5. The value of any superannuation held
6. 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
7. 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.
It is important to note that the above does not constitute an exhaustive list of disclosure that may be required, and that specific advice should be obtained regarding disclosure requirements on a case by case basis.
Another common ground upon which a BFA is overturned is on the basis that one of the parties was subject to duress prior to entering into the agreement.
A clear example of this was seen in the matter of Blackmore & Webber  FMCAFam 154.
In Blackmore, the husband produced a BFA to the wife, five days before they were due to be married. The wife was from Thailand and was reliant upon the husband to sponsor a visa so that she could remain in Australia. The husband stated that he would not marry the wife, nor would he sponsor her visa, if she did not enter into a BFA. The wife signed the BFA and later sought to have the BFA set aside after separation.
The court set aside the BFA on the basis that the wife had been subject to duress.
Whilst that matter involved a marriage, as opposed to a de facto relationship, it provides a clear example of the way the court will reject an agreement entered under duress.
Changes in circumstance
The court can also elect to set aside a BFA in the following circumstances:
1. If a change in circumstances has arisen since the agreement was made such that the carrying out of the agreement, or part thereof is impracticable; and/or
2. If a material change in circumstances has occurred regarding the care, welfare and development of a child and as a result of this change the parent or child will suffer hardship if the agreement remains in place.
As such, it is important to ensure that a BFA is regularly updated to be representative of the current circumstances of the parties.
A BFA can provide couples with a way to ensure certainty of the distribution of their assets in the event of a relationship breaking down. This can help couples avoid the cost, uncertainty, and emotional burden of legal proceedings.
However, it is necessary to ensure that the agreement is appropriately drafted and regularly updated; that each party enters into the agreement willingly, with full knowledge of the financial circumstances of both parties; and with the benefit of sufficient independent legal advice.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.