Binding Financial Agreements in Australia: Pre-Nups, Post-Nups and Financial Risk Management

What Is a Binding Financial Agreement?

A BFA is a written agreement made under Part VIIIA (married couples) or Part VIIIAB (de facto couples) of the Family Law Act. It can deal with:

• how all or any of the parties' property and financial resources are to be divided if the relationship ends;
• spousal maintenance — including a complete release of any future claim;
• superannuation interests — including a superannuation split implemented by the fund trustee; and
• incidental and ancillary matters, such as legal costs and the treatment of jointly held assets.

A BFA cannot deal with parenting arrangements or child support in any binding way. Children are dealt with under separate statutory regimes and the Court retains jurisdiction over those issues regardless of what an agreement says.

Pre-Nuptial Agreements (Before Marriage)

A pre-nuptial agreement is a BFA entered into before marriage under section 90B of the Family Law Act. It is most often used where one or both parties have:

• significant pre-existing wealth they want to quarantine;
• business interests, family trust entitlements or shareholdings that need protection from disruption;
• children from a previous relationship and an estate plan that should not be undermined by a future property claim;
• expected inheritances that the parties have already discussed; and
• a meaningful disparity in age, assets or earning capacity that they want to address up front.

Pre-nups should be drafted with a long view. A well-drafted pre-nup anticipates changes in circumstances — children, career interruptions, business sales, ill health — and addresses how the agreement is to operate at each stage of the relationship. Rigid pre-nups that fail to account for the future are disproportionately vulnerable to a later set-aside application.

Agreements During a Relationship

Couples already married or already in a de facto relationship can enter into a BFA under section 90C (married) or section 90UC (de facto) of the Family Law Act. These agreements are often used to:

• record how a recent inheritance, gift from family or business windfall is to be treated;
• clarify how a new business venture or property purchase relates to the asset pool;
• implement an estate plan that needs to align with property arrangements; or
• resolve uncertainty after a period of separation followed by reconciliation.

The same strict requirements that apply to pre-nups apply to during-relationship agreements. Independent legal advice for each party is non-negotiable.

Agreements After Separation

BFAs can also be made after separation under section 90D (married) or section 90UD (de facto). These agreements are an alternative to consent orders and are sometimes preferred where the parties want to deal with matters that consent orders cannot — for example, a complete release of future spousal maintenance, or an arrangement that depends on future events such as the sale of a business in five years.

For an overview of the property settlement framework that a post-separation BFA sits inside, see our guide to the four-step property settlement process.

De Facto Relationship BFAs

De facto couples — including same-sex couples — can enter BFAs under Part VIIIAB of the Family Law Act. The agreement can be made before the de facto relationship begins, during the relationship or after separation. Some jurisdictional differences apply (including geographic connection requirements), but the formal requirements and grounds for set-aside are substantively the same.

For background on how de facto property claims are determined in the absence of a BFA, see our guide to de facto property claims.

Legal Requirements for a Valid BFA

A BFA is binding only if the statutory formalities are met. They include:

• the agreement is in writing and signed by both parties;
• before signing, each party was provided with independent legal advice from an Australian-qualified lawyer about the effect of the agreement on that party's rights and the advantages and disadvantages of entering into it;
• the lawyer who provided that advice signed a statement to that effect, which forms part of the agreement;
• a copy of the signed lawyer's statement was provided to the other party (or that party's lawyer); and
• the agreement has not been terminated or set aside by a Court.

A BFA does not need to be registered or filed with the Court. It is a private contract between the parties.

Independent Legal Advice

Independent legal advice is the single most-litigated requirement. Both parties must obtain advice from separate Australian-qualified lawyers — the same firm cannot act for both. The advice must address:

• the rights the party would otherwise have under the Family Law Act if there were no agreement;
• the effect of the agreement on those rights — including what is being given up; and
• the advantages and disadvantages of signing the agreement at the time the advice was provided.

The lawyer must give the certificate of independent legal advice before the agreement is signed. Backdating, "sign and then take advice" arrangements, and rushed advice on the day of a wedding are all common reasons agreements are later challenged.

When a Court May Set Aside a BFA

Section 90K (married) and section 90UM (de facto) of the Family Law Act set out the grounds on which a Court can set aside a BFA. They include:

• Fraud — including non-disclosure of a material matter such as an asset, liability, business interest, trust entitlement or income stream;
• Defrauding creditors — where the agreement was entered into for the purpose of defeating a creditor or another person;
• Void or unenforceable — where the agreement is void, voidable or unenforceable under ordinary contract principles (duress, undue influence, mistake);
• Impracticable — where circumstances have arisen since the agreement was made that mean it is impracticable for the agreement, or part of it, to be carried out;
• Material change affecting a child — where a material change in circumstances has occurred relating to the care, welfare and development of a child of the relationship and the applicant would suffer hardship if the agreement were enforced;
• Unconscionable conduct — where one party behaved in a way that, in all the circumstances, was unconscionable; or
• Formal requirements not met — including defective certificates of independent legal advice or missing signatures.

Set-aside applications are common, and the Court's discretion is broad. The best protection against a set-aside is a careful drafting process: full disclosure, separate experienced lawyers, time for genuine reflection, and a final agreement that the Court can read as fair on its face.

Fraud, Non-Disclosure and Unconscionable Conduct

Non-disclosure is the most common factual basis for a set-aside. A party who hides a trust entitlement, an offshore account, a beneficial interest in a family company or a valuable inheritance creates a direct route for the disadvantaged party to set the BFA aside years later. Disclosure is a continuing duty in family law, and a BFA is not an exception.

Unconscionable conduct is the second most common basis. The Court looks at the negotiating positions of the parties, whether one party was under emotional or financial pressure, whether the agreement is signed close to a major event such as a wedding, and whether the disadvantaged party had a genuine opportunity to take advice and consider the consequences. Last-minute pre-nups, BFAs signed during a pregnancy, and agreements signed under threat of separation are heavily scrutinised.

Businesses, Trusts and Inherited Wealth

BFAs are particularly valuable where one party brings significant pre-existing business, trust or inherited assets into a relationship. A well-drafted BFA can:

• identify and quarantine pre-relationship assets, including shareholdings, trust entitlements and family-company interests;
• record the agreed treatment of post-separation growth in those assets;
• align the property regime with the parties' estate plans and succession arrangements; and
• specify how superannuation is to be treated — including a splitting mechanism if appropriate.

For couples where one or both parties have business interests, the BFA should sit alongside the corporate and trust documentation. Our guide to business interests in a property settlement and our overview of business succession planning explain how those regimes interact. Where significant superannuation is involved, see our guide to superannuation splitting in divorce and property settlements.

Asset Protection Considerations

A BFA is a powerful asset-protection tool but it is not a silver bullet. It does not:

• bind third parties such as banks, trustees in bankruptcy or other creditors;
• override the rules of a discretionary family trust or prevent the Court from looking through trust structures in an appropriate case;
• alter the position of children of either party — children and child support are dealt with separately;
• substitute for a current Will, enduring powers of attorney or binding death benefit nomination; or
• guarantee a particular outcome if the agreement is later set aside on one of the statutory grounds.

Asset-protection strategies are most effective when the BFA sits inside a broader plan — including current estate planning documents and a coherent business structure. For an estate-planning starting point, see our guide on why every adult needs a Will and our overview of testamentary trusts.

BFAs Compared with Consent Orders

Most post-separation property settlements are formalised by either consent orders or a BFA. The choice is strategic. For a full guide to how consent orders work, see our article on Consent Orders in family law.

Consent Orders

• orders of the Court, made by a judicial officer who must be satisfied they are just and equitable;
• easier to enforce (they are court orders) and harder to set aside;
• attract stamp duty relief on transfers of real estate and dutiable property in most jurisdictions;
• independent legal advice is strongly recommended but not technically required; and
• generally limited to dealing with existing property at the time of the application.

Binding Financial Agreements

• private contracts — no judicial review of the substantive fairness of the deal;
• can be entered into before, during or after a relationship;
• can deal with future events and future property;
• can include a complete release of future spousal maintenance (consent orders cannot);
• strict statutory formalities — most notably independent legal advice for each party; and
• more vulnerable to a set-aside application than consent orders.

For an overview of how a 50/50 split is — and is not — assumed under Australian family law, see our article on whether assets are always split 50/50.

Advantages and Disadvantages

Advantages

• certainty for couples with significant pre-relationship wealth, business interests or expected inheritances;
• flexibility to deal with future events and to combine property and maintenance into a single instrument;
• ability to align the property regime with a broader estate plan; and
• privacy — BFAs are not filed with the Court and do not appear on a court file.

Disadvantages

• technical drafting and a strict process — cost is generally higher than consent orders;
• vulnerable to set-aside if the formal requirements are not met or if circumstances change materially;
• no judicial check on fairness at the time of signing — the parties carry that risk themselves; and
• cannot bind the Court on parenting or child support matters.

Common Mistakes

• Signing without independent advice. The quickest route to a set-aside. Both parties must take advice from separate Australian-qualified lawyers before signing.
• Inadequate disclosure. Hiding a trust entitlement, family-company interest or superannuation balance hands the other party the basis for a set-aside.
• Signing under pressure. Pre-nups negotiated days before a wedding, or post-separation agreements presented as "sign or it's over", are at high risk of being set aside for unconscionable conduct or duress.
• Failing to address future change. Children, business sales, inheritances and ill health all change the picture. A BFA that does not contemplate change can be set aside as impracticable.
• Using a generic template. A BFA is not a form. Family-law-specialist drafting is essential.
• Treating the BFA as the whole plan. A BFA should sit alongside current Wills, enduring powers of attorney, superannuation nominations and (if relevant) corporate and trust documentation.

Practical Examples

Pre-marriage, second marriage with adult children. Both parties are in their fifties, have adult children from earlier relationships, and bring substantial pre-existing property and superannuation into the marriage. A BFA quarantines the pre-marriage assets, addresses the contribution from the family home that one party brings, and aligns with each party's existing Will and superannuation death benefit nomination.

During relationship, large inheritance received. A couple has been married for ten years. One party receives a large inheritance from a parent. The parties enter into a BFA recording that the inheritance, and a stipulated portion of any growth on it, is to be quarantined from the asset pool if the relationship ends.

Post-separation, business owner with future sale. A separating couple wants to settle property now but the principal asset — a private company — is expected to be sold in three to five years. A BFA records an agreed mechanism for sharing the future sale proceeds (or capping the receiving party's interest), together with an interim payment now and a complete release of future spousal maintenance.

Obtaining Advice

BFAs are technically demanding but, in the right circumstances, they are one of the most powerful tools in family law. The decision to make a BFA, and the form it should take, depends on the parties' assets, their broader estate and business plans, and the realistic alternatives — including consent orders. Advice should be sought early, well before any wedding, settlement deadline or asset sale.

At Parke Lawyers, our family law team advises on the drafting, review and challenging of Binding Financial Agreements across Victoria. Where issues arise alongside a divorce application, our guide to how to apply for divorce in Australia sets out the procedural steps that often run in parallel.