Introduction.
When relationships begin, few couples imagine they will one day separate or divorce. Yet, as statistics show, many relationships do end, and the emotional strain is often exacerbated by complex financial questions. What happens to the house you bought together? What about the inheritance one of you received, or the business you started before marriage? For many Australians, the answer lies in a legal tool known as a Binding Financial Agreement (BFA). These agreements, sometimes referred to as “prenups” or “postnups,” offer a way to clarify financial expectations, divide assets fairly, and minimise conflict should the relationship end.
Understanding how Binding Financial Agreements operate under Australian law is critical for anyone seeking to safeguard their property or avoid expensive court disputes. But these agreements are not simply pieces of paper; they are intricate legal documents governed by the Family Law Act 1975 (Cth) and interpreted by the courts.
If you’re considering a Binding Financial Agreement or facing uncertainty about how your assets will be divided, it’s essential to get informed legal advice early. These agreements can have long-term consequences and must be carefully drafted to be legally enforceable. For guidance tailored to your situation, contactNewcastle Family Lawyers, experienced professionals who can help you protect your financial interests and navigate the complexities of family law with confidence.
What Are Binding Financial Agreements and Why Are They Important?
A Binding Financial Agreement is a legally enforceable contract between two people that sets out how their property, assets, liabilities, and financial resources will be divided if their relationship breaks down. Unlike informal arrangements, a BFA has statutory backing under Part VIIIA of the Family Law Act 1975 (for married couples) and Part VIIIAB (for de facto couples).
BFAs can be entered into:
- Before marriage or entering a de facto relationship – Often referred to as a “prenup.”
- During the relationship – Known as a “postnup.”
- After separation or divorce – To finalise financial matters outside court.
The purpose is straightforward: provide financial certainty and reduce disputes. In practice, however, BFAs are complex legal instruments that must strictly comply with the Family Law Act.
Courts have made it clear that BFAs are not mere templates downloaded online. In Hoult v Hoult [2013] FamCAFC 109, the Family Court emphasised the need for strict adherence to legal requirements for BFAs to be valid and enforceable. This case illustrates that if any element of the agreement fails to meet statutory obligations, the entire agreement may be void.
The Legal Framework for Binding Financial Agreements.
The Family Law Act provides the foundation for Binding Financial Agreements. The key provisions include:
- Section 90B – Allows couples intending to marry to agree about how assets will be divided if they separate.
- Section 90C – Covers agreements made during marriage.
- Section 90D – Applies to agreements made after divorce.
- Sections 90UB, 90UC, 90UD – Apply to de facto couples.
These sections are supported by procedural rules that ensure BFAs meet fairness and enforceability standards. Importantly, both parties must receive independent legal advice before signing a BFA.
This requirement isn’t optional, it’s mandatory. Each party’s lawyer must provide a signed statement confirming that advice was given regarding:
- The effect of the agreement on their client’s rights; and
- The advantages and disadvantages of entering into the agreement.
Without these certificates, the BFA is invalid. The importance of this requirement was reinforced in Ruane v Bachmann-Ruane [2009] FamCA 1101, where the court examined whether proper advice had been given and whether the agreement should stand.
Why Couples Choose Binding Financial Agreements.
Couples use BFAs for various reasons:
- To protect pre-existing assets such as property, businesses, or inheritances.
- To preserve family wealth or farming properties passed through generations.
- To clarify financial expectations during the relationship.
- To avoid lengthy and expensive court proceedings in the event of separation.
In Australia, property division after separation follows the principles set out in the Family Law Act. Courts consider contributions (financial and non-financial) and future needs in deciding how to divide assets. This process can be uncertain and emotionally charged. A BFA allows couples to bypass that uncertainty, giving them control over their financial arrangements.
However, a BFA isn’t only for high-net-worth individuals. Many ordinary Australians use BFAs to provide security and peace of mind, especially in second marriages where children from previous relationships are involved.
Challenging and Setting Aside Binding Financial Agreements.
Although BFAs are powerful, they are not immune from challenge. Under Section 90K of the Family Law Act, a court can set aside a BFA in certain circumstances, including:
- Fraud or non-disclosure – If one party hid significant assets or lied about financial matters.
- Unconscionable conduct – Where one party took advantage of the other’s vulnerability.
- Duress or undue influence – If one person felt pressured into signing.
- Non-compliance with legal requirements – Such as failing to obtain independent legal advice.
- Impracticability – Where circumstances have changed so much that the agreement is impossible to carry out.
Cases such as Thorne v Kennedy [2017] HCA 49 show how the High Court approaches these issues. In that case, a young bride signed a BFA just days before her wedding, under significant pressure, and the court later set aside the agreement for undue influence.
This precedent reminds us that even if a BFA is signed and seemingly watertight, it can be overturned if the process leading to its creation was unfair or coercive.
Binding Financial Agreements Versus Consent Orders.
It’s important to distinguish between a BFA and Consent Orders.
- Consent Orders are court-approved agreements that have the same effect as a court order.
- Binding Financial Agreements are private contracts that do not require court approval.
While both aim to finalise financial matters, Consent Orders involve judicial oversight, whereas BFAs do not. BFAs offer greater flexibility but also require meticulous drafting to ensure enforceability.
Binding Financial Agreements for De Facto Couples.
The law in Australia recognises de facto relationships for financial settlements. Since amendments to the Family Law Act in 2009, de facto couples (including same-sex couples) have been able to use BFAs under Part VIIIAB.
This means that a couple who has lived together on a genuine domestic basis for at least two years, or who share a child, can enter into a BFA to protect their assets.
The case Jonah v White [2011] FamCA 221 highlighted the need to establish the existence of a de facto relationship before the terms of a BFA could even be considered. This demonstrates how foundational legal definitions influence the operation of BFAs.
Practical Considerations When Drafting a Binding Financial Agreement.
Drafting a Binding Financial Agreement is not a DIY exercise. Courts have repeatedly warned that sloppy drafting can lead to BFAs being struck out. To withstand legal scrutiny, a BFA must:
- Accurately list all assets, liabilities, and financial resources.
- Clearly outline how property will be divided.
- Address spousal maintenance, either by providing for it or stating it is excluded.
- Be signed by both parties with independent legal advice certificates attached.
Some BFAs also include “sunset clauses,” automatically ending the agreement after a set time or event (such as the birth of a child). While these clauses can add flexibility, they must be drafted carefully to avoid ambiguity.
What Happens if You Don’t Have a Binding Financial Agreement?
Without a BFA, separating couples rely on the Family Law Act’s default provisions for property division. This means either reaching an agreement themselves, applying for Consent Orders, or asking the Family Court or Federal Circuit and Family Court of Australia to decide.
Court proceedings can be lengthy, stressful, and costly. While not suitable for everyone, a properly executed BFA can save time and provide certainty about the future.
Recent Trends and the Future of Binding Financial Agreements.
BFAs have evolved significantly since their introduction in 2000. Initially criticised for being “American-style prenups,” they are now an accepted feature of Australia’s family law landscape. However, case law continues to shape how they operate.
Recent decisions stress that BFAs will only hold up if they are created with fairness and transparency. The courts are particularly vigilant in cases involving power imbalances or last-minute pressure.
Legal practitioners are also seeing BFAs used creatively, for example, in blended families, where they can help ensure that children from previous relationships are provided for.
The Role of Lawyers in Binding Financial Agreements.
When dealing with something as sensitive and consequential as a BFA, legal guidance is indispensable. Experienced lawyers can:
- Explain whether a BFA is suitable for your situation.
- Ensure compliance with the Family Law Act’s strict technical requirements.
- Draft a tailored agreement that reflects your intentions and safeguards your interests.
- Provide the mandatory independent legal advice for you or your partner.
BFAs are powerful, but they are only as strong as their drafting and execution. The involvement of competent lawyers is often the difference between an agreement that stands and one that fails when challenged in court.
Common Misconceptions About Binding Financial Agreements.
Despite their growing use, BFAs are surrounded by myths:
- “BFAs are only for the wealthy.” Not true, they’re for anyone who wants clarity about finances.
- “Once signed, a BFA can never be challenged.” False, courts can set them aside in certain circumstances.
- “BFAs are unromantic.” While not the most romantic gesture, they are practical and often show mutual respect for each other’s financial realities.
Dispelling these misconceptions is important for couples considering a BFA.
Case Law Shaping Binding Financial Agreements.
Several landmark cases have shaped the way BFAs are interpreted:
- Thorne v Kennedy [2017] HCA 49 – A cautionary tale about pressure and unconscionability.
- Hoult v Hoult [2013] FamCAFC 109 – Highlighted the importance of strict compliance with statutory requirements.
- Parker v Parker [2010] FamCA 664 – Considered non-disclosure and honesty in creating BFAs.
These cases reinforce that BFAs aren’t merely paperwork; they’re scrutinised by courts and must stand up to legal and ethical standards.
When Should You Consider a Binding Financial Agreement?
The decision to create a BFA is personal, but there are clear situations where it’s sensible:
- Entering marriage or a de facto relationship with significant assets.
- Running a business you want to protect from potential claims.
- Entering a second marriage and wanting to safeguard inheritances for children.
- Receiving a large inheritance or windfall during a relationship.
In these circumstances, having a frank discussion about finances early on can prevent significant disputes later.
The Bottom Line.
Binding Financial Agreements are not for everyone, but for many Australians, they provide invaluable clarity and security. They allow couples to decide their own financial future rather than leaving it to the courts, but only if drafted carefully and fairly.
The law is strict, the cases are clear, and the stakes are high. A poorly drafted BFA can do more harm than good, but a properly prepared one can save years of heartache and litigation.
Conclusion.
Navigating the complexities of Binding Financial Agreements requires more than just signing a document; it demands careful legal consideration and adherence to the law. Understanding your rights and obligations now can prevent disputes later, whether you are starting a relationship, in the midst of one, or considering separation. Take time to seek informed guidance so that any agreement you enter into truly protects what matters most to you.
If you’re considering a Binding Financial Agreement or facing related family law issues, consultNewcastle Family Lawyers for experienced legal advice tailored to your circumstances.