A binding financial agreement, also known as a financial agreement, prenup or simply BFA, is a contract between two individuals that formalises how their assets and liabilities will be divided in an event of a breakdown of their relationship.
BFAs are not exclusive to married couples. Couples can enter into binding financial agreement before, during or after the breakdown of a relationship.
When is a Binding Financial Agreement binding?
The Family Law Act 1975 (Cth) sets out that a BFA is binding “if and only if” it complies with the requirements of s90G (equivalent provision for de facto couples is s90UJ). These are:
- The agreement is signed by both parties; and
- Before signing the agreement, each party receives independent legal advice about the effects of the agreement on their rights and the advantages and disadvantages of making the agreement; and
- Before or after signing the agreement, each party is provided with a signed statement by their lawyer confirming they received legal advice; and
- Copies of the written advice is exchanged between the parties; and
- The agreement is not terminated or set aside by the court.
If not drafted properly BFAs can be risky and problematic documents for those entering into the agreement, we well as those drafting and advising on them. Therefore, strict compliance with s90G is essential.
Advantages of Binding Financial Agreements (“BFAs”)
The Family Courts in Australia are overcrowded, costly, emotionally draining and proceedings can be very lengthy. BFAs are intended to be useful, cost-effective instruments that give couples a degree of control over what happens to their assets if they separate and save them from the ongoing stress of litigation.
BFAs are not sanctioned by the court, meaning the parties have the freedom to negotiate the terms of the agreement. A person may want to protect the assets they have acquired become coming into the relationship or an inheritance from the family.
BFAs give couples the power to determine the outcome of their own property and financial settlement rather than leaving it in the hands of the Family Circuit and the Family Court of Australia.
The requirement of independent legal advice provides a measure of protection for parties entering into an agreement, allowing them to make informed decisions.
Most importantly, it saves both parties the cost of litigation, saves them time and the emotional toll of going through a court proceeding.
Disadvantages of Binding Financial Agreements
Bringing up the topic of prenups can insinuate lack of trust since such agreements are written for when the relationship breaks down. It may put a strain on the relationship before it even starts.
Court can set aside an agreement that doesn’t comply with the legislation. Similarly, if an agreement is valid, it cannot be set aside just because it is a bad bargain for one party.
There is no duty of disclosure. Parties are advised to provide full and frank disclosure, but no such obligation is set out in the Family Law Act in regard to financial agreement.
Setting aside Binding Financial Agreements
When or if you are considering entering a BFA with your partner, you should keep in mind that even though the courts do not issue BFAs they have the power to set them aside.
Agreements signed close to the wedding date are at a risk of being set aside. In Parkes and Parkes  FCCA 102, the financial agreement signed 3 days before the wedding was set aside.
Thorne v Kennedy  HCA 49 is a landmark decision in family law in which the HC held the financial agreements were voidable under s90K(1) of the FLA due to unconscionable conduct. The couple met online, and Ms Thorne moved to Australia to marry Mr Kennedy a wealthy property developer. Eleven days before the wedding he presented her with a financial agreement and told her if she didn’t sign the marriage and their relationship was over. By this time Ms Thorne was reliant on Mr Kennedy for all her financial and emotional needs and her family and friends had arrived for the wedding. Six days before the wedding Ms Thorne received independent legal advice. The solicitor clearly told her the agreement was the worst she had ever seen, and Ms Thorne should not sign it. However, going against the advice of the solicitor Ms Thorne signed the pre- and post-nuptial agreements.
BFAs don’t have to be complicated and unfair. There are rules put in place to ensure fairness for all those involved. One should evaluate their current situation and future needs along with both the advantages and disadvantages before entering into such agreements.
The information provided here is general legal information. It is not legal advice. If you need advice specific to your situation, talk to a family lawyer in Sydney today.