Binding financial agreements (prenups) explained

Most people call it a prenup, but in Australia the proper term is a binding financial agreement. It lets a couple decide in advance how their property will be divided if the relationship ends, rather than leaving it to a court. The agreements are powerful, but they are also technical, and a poorly made one can be worthless. This guide explains how they work.

What a binding financial agreement is

A binding financial agreement, or BFA, is a private contract between a couple about how their property, finances, and sometimes spousal maintenance will be dealt with if they separate. It is made under the Family Law Act 1975 and, when done properly, it is binding and it keeps the question of property division out of the courts.

The appeal is certainty and privacy. Instead of leaving a future property settlement to be worked out, perhaps in dispute, under the usual court process, the couple agrees the outcome in advance, on their own terms. For people with assets to protect, a business, children from a previous relationship, or an inheritance, that certainty can be valuable.

When you can make one

A BFA is not just for before a wedding. You can make one at three stages. Before a marriage or de facto relationship, which is the classic prenup. During a marriage or relationship. And after a marriage ends or a de facto relationship breaks down, to formalise the settlement.

For married couples the relevant provisions are in Part VIIIA of the Family Law Act, broadly section 90B before marriage, 90C during, and 90D after divorce. For de facto couples the equivalents are in Part VIIIAB. The practical point is that the tool is flexible and is used at different stages for different reasons.

The strict requirements

This is where BFAs demand care, because the requirements are strict and the consequences of getting them wrong are serious. For a BFA to be binding, the key requirements include the following.

• The agreement must be in writing and signed by both parties.
• Before signing, each party must receive independent legal advice from their own lawyer about the effect of the agreement on their rights and about its advantages and disadvantages.
• Each party's lawyer must provide a signed statement confirming that advice was given.
• The agreement must not have been set aside by a court.

The requirement for separate, independent legal advice is not a formality. It is central, and it is why a BFA cannot be a do-it-yourself document or one lawyer acting for both sides. Each person needs their own lawyer. A BFA that skips or skimps on these requirements can be challenged and may not hold.

When a court can set one aside

Even a properly made BFA is not entirely bulletproof. A court can set a BFA aside on a number of grounds, which broadly include that the agreement was obtained by fraud, including non-disclosure of a material matter, that a party entered it under duress, undue influence, or unconscionable conduct, that circumstances have changed so that it is impracticable to carry it out, or that a material change in circumstances relating to the care of a child would cause hardship.

This is the honest caveat we always give. A BFA significantly reduces the risk of a future court fight, but it does not reduce it to zero, and the way to make it as robust as possible is to do it properly, with full disclosure, genuine independent advice on both sides, and no pressure or last-minute signing.

Are they worth it

For the right couple, yes. The value of a BFA is certainty and protection, and it is highest where there is an imbalance of assets, a business or family wealth to protect, children from an earlier relationship, or an expected inheritance. For a couple with few assets and a simple situation, the cost and the formality may outweigh the benefit.

A point on timing and tone. A BFA made well before a wedding, with time for each side to get advice and consider it, is far stronger and far less stressful than one produced a week out. If you are considering one, start early.

How we help

We prepare and advise on binding financial agreements, acting for one party and ensuring the other has their own independent advice, so the agreement meets the requirements and is as robust as it can be. We are also honest about what a BFA can and cannot do. Done properly it is a powerful tool. Done badly it is false comfort. If you are considering an agreement, speak to us early, well before any deadline.

Frequently asked questions

Is a prenup legally binding in Australia? Yes, when it is made as a binding financial agreement that meets the strict requirements of the Family Law Act, including independent legal advice for each party.

Do we each need our own lawyer? Yes. Each party must receive independent legal advice from their own lawyer, and each lawyer must provide a signed statement confirming it. One lawyer cannot act for both.

Can a binding financial agreement be overturned? A court can set one aside on grounds such as fraud or non-disclosure, duress, unconscionable conduct, or a material change affecting a child. Doing it properly reduces that risk.

When should we make one? It can be made before, during, or after a relationship. If before a wedding, start early, so each side has time for advice and the agreement is not signed under pressure.

Keep reading

• Family law
• Property settlement after separation: how it works
• De facto relationships and property rights

This article contains general information only and is not legal advice. For advice about your situation, please contact us. Liability limited by a scheme approved under Professional Standards Legislation.