Prenups in Australia: What Is a Binding Financial Agreement?

Many people have heard the term “prenup” through movies, media or overseas legal systems. In Australia, however, the legal term is usually a Binding Financial Agreement, or BFA.

A Binding Financial Agreement is a private legal agreement between two people that sets out how some or all of their property, assets, liabilities and financial resources will be dealt with if their relationship ends. Depending on the circumstances, it may also deal with spousal maintenance.

Although people often associate these agreements with couples who are about to get married. Financial agreements can be made at different stages of a relationship, including before marriage, during a marriage, before or during a de facto relationship, or after separation.

When might someone consider a Binding Financial Agreement?

A Binding Financial Agreement may be worth considering where one or both people want greater certainty about what would happen financially if the relationship broke down.

This can be particularly relevant where:

  • one person owns property before entering the relationship
  • one or both people have children from a previous relationship
  • there is a family business, trust or inheritance to consider
  • one person has significantly more assets or debt than the other
  • parents have contributed money towards a home deposit
  • a couple is entering a second marriage or later-life relationship
  • one person wants to protect specific assets or financial interests.

For many couples, the purpose of a Binding Financial Agreement is not to plan for separation, but to have a clear and documented understanding about financial matters from the outset.

Are Binding Financial Agreements only for wealthy people?

No. While Binding Financial Agreements are often associated with high-net-worth individuals, they can be useful in a range of situations.

For example, a person may own a modest home before entering a relationship, have superannuation they have built up over many years, or expect to receive an inheritance in the future. A couple may also want to record how they will treat contributions from family members, such as money provided by the “Bank of Mum and Dad”.

The value of an agreement depends on the circumstances, the assets involved, the relationship history and the level of certainty each person wants.

Is a Binding Financial Agreement automatically binding?

Despite the name, a Binding Financial Agreement is not automatically binding simply because both people sign it.

There are strict legal requirements that must be met. Each party must receive independent legal advice before signing, and the agreement must be carefully prepared to comply with the Family Law Act. The law in this area is complex, and a poorly drafted agreement may later be challenged.

This is why it is important to obtain legal advice before entering into any financial agreement, rather than relying on a template or informal written arrangement.

Can a Binding Financial Agreement be challenged?

In some circumstances, yes. A financial agreement may be challenged if, for example, there has been non-disclosure of important financial information, pressure or duress, unfair conduct, or if the agreement does not meet the required legal formalities.

Changes in circumstances may also affect how an agreement operates, particularly where children are involved or where the agreement no longer reflects the realities of the relationship. Getting proper advice at the beginning can reduce the risk of future disputes.

What about de facto couples?

Binding Financial Agreements are not limited to married couples. De facto couples may also enter into financial agreements. This is important because many people do not realise that de facto relationships can create legal rights and obligations in relation to property settlement. Being unmarried does not necessarily mean there are no financial consequences if the relationship ends.

Should you consider a Binding Financial Agreement?

A Binding Financial Agreement is not necessary or appropriate for every couple. However, it can be a useful option where there are assets to protect, children from earlier relationships, family wealth, business interests, or a desire to avoid uncertainty in the future.

If you are getting married, moving in with a partner, entering a second relationship, or already in a relationship and concerned about how your finances would be dealt with if you separated, it is worth getting advice early.

At WMD Law, our family law team can help you understand whether a Binding Financial Agreement is appropriate for your circumstances and what steps are required to ensure your interests are properly protected. Call our team on 9525 8688 or click here to contact us.