Table of Contents
Introduction.
Financial uncertainty is one of the most stressful aspects of a relationship breakdown. Whether you are entering a marriage, de facto relationship, or going through a separation, questions about how property, assets, and liabilities will be divided often arise. Many Australians are unsure how to protect their financial interests without creating unnecessary conflict. This is where a Binding Financial Agreement can provide clarity, security, and peace of mind, but they must be properly drafted and executed to be enforceable. Understanding how they work, when they are appropriate, and how they interact with Australian family law is essential for anyone seeking financial certainty in their relationship.
If you’re considering a Binding Financial Agreement, consultBankstown Family Lawyers for expert advice to ensure your agreement is legally sound and tailored to your unique circumstances.
Exploring the legal framework and practical implications of Binding Financial Agreements.
Binding Financial Agreements are formal contracts governed by the Family Law Act 1975 (Cth). They allow couples, married, de facto, or planning to marry, to predetermine how their assets, liabilities, superannuation, and even spousal maintenance will be managed in the event of separation or divorce.
Sections 90B–90KA of the Family Law Act cover BFAs for married couples, while Sections 90UA–90UN apply to de facto couples. Depending on the stage of the relationship, there are different types of BFAs:
- Pre-nuptial agreements (s90B) – entered into before marriage.
- Post-nuptial agreements (s90C) – made during marriage.
- Post-divorce agreements (s90D) – executed after divorce.
- Similar provisions (s90UB–s90UD) apply to de facto couples before, during, and after the relationship.
The intention behind these agreements is to provide an alternative to court-determined property settlements, effectively allowing couples to decide their financial outcomes privately.
Why Binding Financial Agreements Matter.
The Australian family law system generally follows the principle of “just and equitable” property division when relationships end. Courts look at contributions (both financial and non-financial), future needs, and other relevant circumstances. While this approach aims to be fair, it can result in outcomes that neither party anticipated.
A properly drafted Binding Financial Agreement allows couples to avoid litigation by locking in arrangements about property division and financial responsibilities ahead of time. This can be particularly valuable for people entering second marriages, business owners protecting company interests, or anyone with significant pre-existing assets.
Strict Requirements for Validity.
The enforceability of a Binding Financial Agreement depends on meeting very strict statutory requirements. If these conditions are not satisfied, the agreement risks being set aside by the Family Court. Under s90G (for marriages) and s90UJ (for de facto relationships), a BFA will only be binding if:
- Both parties sign the agreement.
- Each party receives independent legal advice before signing about the advantages, disadvantages, and effect of the agreement.
- Each party’s lawyer provides a signed statement confirming they gave this advice.
- The agreement is not terminated or set aside by the court.
These formalities were highlighted in Black v Black (2008) 38 Fam LR 503, where the Family Court set aside a BFA because the legal advice provided to one party was inadequate. The case serves as a clear warning: BFAs are only as strong as the legal advice underpinning them.
When Can a Court Set Aside a Binding Financial Agreement?
Despite being designed to prevent litigation, BFAs are not immune from court scrutiny. Under s90K (married couples) and s90UM (de facto couples), a court may set aside an agreement if:
- It was obtained by fraud (including nondisclosure of assets).
- The agreement is void, voidable, or unenforceable (e.g., due to uncertainty or illegality).
- Circumstances have arisen making it impracticable to carry out the agreement.
- A party engaged in unconscionable conduct, duress, or undue influence.
- A significant change in circumstances relating to children has caused hardship (e.g., a child’s special needs arise after signing).
In Thorne v Kennedy [2017] HCA 49, the High Court famously set aside a BFA after finding it was signed under “undue influence” and “unconscionable conduct.” A young bride was pressured to sign just days before her wedding, with the threat that the marriage would not proceed otherwise. This landmark case demonstrates that while BFAs can be powerful, they cannot override principles of fairness or be used as instruments of exploitation.
Binding Financial Agreements and Spousal Maintenance.
An important feature of BFAs is that they can deal with spousal maintenance, either agreeing to pay it, limiting it, or excluding it altogether. Section 90E of the Family Law Act makes it clear that a BFA can specify that one party is not entitled to maintenance. However, such provisions will not stand if they leave one party in a situation of real financial hardship.
For example, if a BFA states that no spousal maintenance will be paid, but one party becomes severely ill and unable to support themselves, the court may step in. This ensures that BFAs are not used to completely strip vulnerable individuals of essential support.
The Role of Lawyers in Drafting BFAs.
Given the technical requirements, drafting a Binding Financial Agreement is not a simple paperwork exercise. Both parties must have their own lawyer, and the advice must be meaningful. A lawyer cannot simply “witness” a signature; they must provide comprehensive advice on the agreement’s implications.
For example, they must explain:
- How the agreement affects the client’s entitlement under the Family Law Act.
- Whether alternative arrangements might be more favourable.
- The potential risks of signing, including what rights are being waived.
If this process is not followed diligently, the agreement’s validity can later be challenged.
BFAs vs Consent Orders.
While BFAs provide a private mechanism for financial arrangements, consent orders, approved by the Family Court, remain a common way of formalising property settlements. Consent orders must meet the “just and equitable” standard under s79 of the Family Law Act, while BFAs do not require this test.
This distinction means BFAs can sometimes achieve outcomes that consent orders cannot, but it also means there is greater potential for unfairness if one party is pressured. Courts, therefore, take a closer look when there are claims of exploitation or lack of understanding.
Tax and Superannuation Considerations.
BFAs can also deal with the division of superannuation interests under Part VIIIB of the Family Law Act. This is significant because superannuation is often a major asset in long-term relationships. Proper structuring of a BFA can ensure that super splitting is managed efficiently and without unnecessary tax consequences.
Similarly, BFAs can be used to manage capital gains tax (CGT) implications. Although family law transfers can qualify for CGT rollover relief, poor drafting or non-compliance with legislation can trigger tax liabilities that neither party expected.
Common Misunderstandings About BFAs.
There are several myths about BFAs that need addressing:
- They’re only for the wealthy: While high-net-worth individuals often use them, BFAs are equally useful for couples with modest assets who want clarity.
- They guarantee zero conflict: While they reduce litigation risk, they can still be challenged, especially if one party claims duress or inadequate disclosure.
- They replace the need for legal advice: Quite the opposite, BFAs require independent legal advice for each party, or they are not valid.
Practical Tips for Making BFAs Work.
To maximise the chances that a BFA will hold up under legal scrutiny:
- Disclose all assets and liabilities fully and honestly. Hidden assets are a fast track to having a BFA overturned.
- Avoid rushing. Signing days before a wedding (as in Thorne v Kennedy) increases the risk of a later challenge.
- Keep the agreement updated. Major life changes, children, inheritance, and business growth may require amendments.
Enforcement of Binding Financial Agreements.
If one party refuses to comply with a BFA, the other can seek enforcement through the Family Court under s90KA (for marriages) or s90UN (for de facto). Courts can make orders to ensure compliance, such as property transfer orders, if the agreement is deemed valid.
However, enforcement proceedings can become complex if the validity of the agreement is disputed. The first issue the court will consider is whether the BFA meets all legislative requirements and whether any of the grounds for setting aside apply.
The Balance Between Certainty and Fairness.
The appeal of a Binding Financial Agreement lies in its ability to provide certainty. Couples can define their own financial future instead of leaving it in the hands of the court. But the law insists on safeguards to prevent unfair outcomes.
BFAs, therefore, walk a fine line, they allow freedom of contract, but only within the limits of fairness and informed consent.
Frequently Asked Questions about Binding Financial Agreements.
What is the difference between a Binding Financial Agreement and a prenup?
A Binding Financial Agreement is the legal term used in Australia, while “prenup” is a more informal term often used internationally. Both refer to agreements entered into before marriage that outline how assets will be divided, but BFAs are governed by strict provisions of the Family Law Act 1975.
Can a Binding Financial Agreement be changed after it’s signed?
Yes. A BFA can be terminated or amended by mutual agreement. The parties can sign a “termination agreement” (under s90J for marriages or s90UL for de facto couples) or replace the original BFA with a new one, provided all legal requirements, including independent legal advice, are met again.
Are Binding Financial Agreements enforceable in every case?
Generally, yes, but only if they meet all statutory requirements. If the agreement was signed under duress, involves fraud, or omits significant assets, a court may set it aside under s90K or s90UM of the Family Law Act.
Do both parties really need separate lawyers?
Absolutely. The Family Law Act mandates independent legal advice for each party. This isn’t just a formality; the advice must be thorough and cover the agreement’s impact, risks, and potential disadvantages. Without this, the BFA won’t be binding.
Can a Binding Financial Agreement include parenting arrangements?
No. BFAs are only for financial matters, including property division, superannuation, and spousal maintenance. Parenting matters are dealt with separately, usually through parenting plans or consent orders.
Conclusion.
Understanding the role of a Binding Financial Agreement in Australian family law is vital for anyone seeking financial clarity in a relationship. These agreements can offer peace of mind and security, but they come with strict requirements and legal complexities that cannot be ignored. If you are considering a BFA, whether before marriage, during a relationship, or after separation, make sure you receive comprehensive independent legal advice and fully understand your rights and obligations. Taking the time to learn about the law, ask questions, and protect your interests is the best step toward financial certainty and avoiding costly disputes in the future.
For tailored advice and assistance with Binding Financial Agreements, consultBankstown Family Lawyers to ensure your agreement is properly prepared, compliant, and in your best interests.
