Binding Financial Agreements in Australia: What You Need to Know Before You Sign

Modern relationships are becoming increasingly complex and Australians are accumulating wealth much earlier in life, which is why Binding Financial Agreements (BFAs) have become so common. 

Whether you are getting married, entering a de facto relationship or want to protect assets accumulated during your relationship, understanding how these agreements work is crucial.

Despite their growing popularity, BFAs remain one of the most misunderstood areas of family law, as many incorrectly assume that once they’re signed, these agreements are ironclad. The reality is more nuanced, and the consequences of getting it wrong can be severe.

What Is a Binding Financial Agreement?

A Binding Financial Agreement is a private contract between parties to a relationship that sets out how their assets, liabilities and financial resources will be divided if the relationship breaks down. BFAs are governed by the Family Law Act 1975.

For married couples, the Act provides for financial agreements at three stages: before marriage, during marriage and after divorce. 

This is slightly different when it comes to de facto couples, as agreements can be made during a de facto relationship and after one has broken down. While the term “prenuptial agreement” or “prenup” is commonly used in Australia, it is technically an American idea, with The Family Law Act deliberately avoiding the term so as to distinguish BFAs as a separate legal instrument.

A BFA can cover the division of property and assets, superannuation splitting, spousal maintenance arrangements and other matters connected to these issues. While BFAs may sometimes include terms connected with children (such as how certain expenses are met), they cannot replace the court’s jurisdiction on parenting matters or override the child support legislation. 

Arrangements between parents and the specifics of child support are ultimately governed by the “best interests of the child” test and the child support scheme respectively, so they are determined separately from a BFA.

Why Consider a Binding Financial Agreement?

There are several circumstances in which a BFA can be quite valuable.

Protecting pre-existing assets. If you are entering a relationship with significant assets such as property, a business or inheritance, a BFA can ensure these remain yours in the event of separation.

Second marriages and blended families. For those entering second marriages, particularly later on in life, a BFA can be used to protect assets intended for children from a previous relationship.

Business protection. If you own a business, a BFA can prevent your partner from making a claim against the business or requiring its sale to fund a property settlement.

Clarity and certainty. A BFA sets out agreed arrangements in advance, helping to avoid lengthy and expensive court proceedings in the event a relationship ends.

Protecting future inheritances. A BFA can ensure that inheritances received during the relationship are kept separate from any property division.

The Legal Requirements for a Valid BFA

The Family Law Act has a range of strict requirements which must be met in order for a BFA to be legally binding, including:

The agreement must be in writing and signed by both parties.

Both parties must receive independent legal advice before signing a BFA. Each party must have their own separate lawyer who provides advice about the effect of the agreement on their rights and the pros and cons of entering into it.

All lawyers involved must sign a certificate stating that they have given this advice. The agreement can only be binding with these certificates.

Full and frank financial disclosure is a necessity. Both parties must fully and honestly disclose all their assets, liabilities, income and financial resources. Concealing or misrepresenting assets can be grounds for the agreement to be nullified later.

The agreement must also be entered into voluntarily and without duress, undue influence or unconscionable conduct.

When Can a BFA Be Set Aside?

A BFA can still be set aside by a court in certain circumstances, regardless of whether it meets all the technical requirements. This is common in cases of:

Fraud or non-disclosure. If one party failed to disclose significant assets or misrepresented their financial position, the agreement can be set aside.

Duress, undue influence or unconscionable conduct. If one party was pressured into signing or the circumstances were fundamentally unfair, the court may intervene.

Material change in circumstances relating to children. If there has been a material change in circumstances relating to the care, welfare and development of a child of the relationship since the agreement was made, the court may set aside the entire agreement if the party with care of the child would suffer hardship as a result.

Impracticability. If it has become impractical to carry out the agreement, the court may set it aside.

Defeating creditors. If the agreement was entered into to defeat or defraud creditors, it will not be enforced.

The Landmark Case: Thorne v Kennedy

The High Court of Australia’s decision in Thorne v Kennedy (2017) is the most significant case on BFAs in recent years as it demonstrated that an agreement can still be overturned even when all technical requirements are met.

The case involved a wealthy 67-year-old property developer with assets of approximately $18 million who met a 36-year-old woman from Eastern Europe through an online dating site. Before their wedding, he asked her to sign a BFA that would leave her with just $50,000 if they separated within three years of their marriage.

The woman’s independent legal advice told her the agreement was extremely unfair and that she should not sign it. However, her fiancé made it clear the wedding would not proceed unless she did. At this point, her family had already flown to Australia for the wedding and she had no right to remain in the country if the relationship ended.

The Court identified several things that indicated the agreement was not entered into freely, including whether the agreement was offered on a non-negotiable basis, the emotional circumstances surrounding the signing, whether there was enough time for proper consideration, inequality of bargaining power between parties and whether independent advice was followed.

This case does not mean BFAs are unenforceable, it shows that courts will scrutinise the circumstances in which agreements are made, particularly where there is a significant power imbalance between the parties.

Best Practices for a Robust BFA

If you have been thinking about getting a BFA, these best practices will maximise the likelihood that your agreement will be upheld in the event it’s challenged.

Start early. Do not leave the agreement until days before the wedding. Both parties should have ample time to consider the terms, get advice and negotiate if necessary. Agreements signed under time pressure are more vulnerable to challenge.

Ensure genuine negotiation. Presenting an agreement on a “take it or leave it” basis is a red flag. Both parties should have the opportunity to negotiate terms and feel that the final agreement is fair.

Obtain quality independent legal advice. Each party must have their own lawyer experienced in family law. The advice they give should be thorough and documented.

Make full financial disclosure. Both parties should provide complete and honest disclosure of their financial positions. Keep records of this in case it is later disputed.

Consider fairness. While a BFA can legitimately protect one party’s assets, agreements that leave the other party with virtually nothing are more likely to be challenged. Consider whether the agreement provides a fair outcome.

Review and update. Circumstances change over time. A BFA entered into before children, career changes or the accumulation of significant wealth may no longer be appropriate, so always review your agreement periodically and update if needed.

BFAs Versus Consent Orders

BFAs are not the only way to formalise financial arrangements.

Consent Orders are another option, especially for couples going through a separation. Unlike BFAs, Consent Orders are approved by the Family Court and become court orders.

Both financial agreements and consent orders can be challenged on certain grounds, including fraud, duress and non-disclosure. Challenges may also be brought on the basis of a miscarriage of justice for consent orders. 

While the specific statutory provisions between the two are quite different, which you’d be better going for depends on your specific circumstances. BFAs are more flexible and private because they are not filed with the court, while Consent Orders may provide a different pathway to formalising arrangements with court oversight.

Getting It Right Matters

A poorly drafted or improperly executed BFA is often worse than having no agreement in place at all. 

It may create a false sense of security only to be set aside years later when you need it most. The cost of proper legal advice upfront is minimal compared to the potential consequences of ending up with an unenforceable agreement.

At Kingsford Lawyers, our family law team has extensive experience drafting, reviewing and advising on Binding Financial Agreements. 

We can help you understand whether a BFA is right for your circumstances, ensure the agreement meets all legal requirements, draft terms that protect your interests while remaining fair and enforceable, provide the independent legal advice required under the Family Law Act and review existing agreements to assess their validity.

Whether you’re planning to marry, entering a de facto relationship or simply want to understand your options, getting clear, professional legal advice from experienced lawyers is the essential first step.

Call our results-focused team on (07) 5502 3529 to arrange a consultation about your Binding Financial Agreement. We speak over 10 languages, so you’ll get advice you understand, in the language you’re most comfortable with.