Binding Financial Agreements: How to Set Them Up and When They Can Be Set Aside
A Financial Agreement or sometimes also known as Binding Financial Agreement (often called a BFA, or informally a “prenup” or “post nup”) is a private contract made under the Family Law Act 1975 (Cth). It allows couples to record how property, financial resources, and (in some cases) spousal or de facto partner maintenance will be dealt with if the relationship ends. If a financial agreement is valid and binding, it can limit the Court’s ability to make property and maintenance orders about the matters it covers.
Because a financial agreement can have significant and long-lasting consequences, the law sets strict technical requirements for it to be enforcearble, and there are specific grounds on which a Court can set it aside.
When can a financial agreement be made?
The Family Law Act provides for financial agreements at different stages of a relationship:
Marriage: before marriage (s 90B), during marriage (s 90C), or after a divorce order is made (s 90D).
De facto relationships: before the relationship (s 90UB), during the relationship (s 90UC), or after breakdown of the relationship (s 90UD).
Agreements can be used in different ways. Some couples use them for upfront planning (for example, to clarify how pre-existing assets will be treated). Others use them after separation to finalise property and maintenance issues without litigation or any reference to the Court.
What does “binding” mean, and what must be done to get there?
A financial agreement is not automatically binding just because it is signed. The Act sets out conditions that must be met.
For married couples, s 90G provides that a financial agreement is binding only if it is signed by all parties, each party receives independent legal advice about the effect of the agreement on their rights and the advantages and disadvantages of entering it at that time, and the lawyers provide signed statements confirming that advice (with copies provided to the other side), among other requirements.
For de facto couples, s 90UJ sets out substantially similar binding requirements, including signatures and independent legal advice with the required legal practitioner statements.
These are technical rules. A missed step can create a real risk that the agreement will not be enforceable, or that it will be vulnerable to challenge later.
A practical step-by-step approach to setting up a BFA
While every matter is fact-specific, the mechanics of putting a financial agreement in place usually involve:
Identify the purpose and scope
Decide what the agreement is meant to cover. Some agreements “cover the field” and deal with the full financial relationship. Others deal only with specific issues.Prepare full and accurate disclosure
One of the clearest risk areas is incomplete disclosure. The Act expressly includes “non-disclosure of a material matter” within fraud as a ground to set aside.
Practically, this means each person should disclose assets, liabilities, income, and financial resources in a way that is complete and capable of being evidenced (for example, with documents where available).Allow adequate time for negotiation and advice
Rushed negotiations, last-minute presentation of documents, and unequal bargaining positions can all increase risk. Courts do not set aside agreements simply because one party later regrets the deal, but timing and pressure can matter when assessing doctrines like undue influence and unconscionable conduct (discussed below).Each party obtains independent legal advice
Independent advice is mandatory for a standard binding agreement under the Act, and it must cover the effect of the agreement on the party’s rights and the advantages and disadvantages of making it at that time.Signatures and the required legal practitioner statements
The agreement must be signed, and the required lawyer statements must be provided and exchanged as required by the Act.Execution, storage, and review planning
Keep executed copies and supporting material (like disclosure documents). If circumstances change significantly over time, it may be sensible to obtain advice about whether an updated agreement is appropriate.
When can a Court set aside a financial agreement?
Even if an agreement was intended to be final, the Court can set it aside in specific situations.
For marriage-related agreements, s 90K allows a Court to set aside a financial agreement (or termination agreement) if, and only if, it is satisfied of one of the listed grounds. These include: fraud (including non-disclosure of a material matter), agreements made to defeat creditors, the agreement being void/voidable/unenforceable, impracticability, material change in circumstances relating to a child causing hardship, unconscionable conduct in the making of the agreement, and certain superannuation-related issues.
For de facto agreements, s 90UM sets out similar grounds, including fraud and non-disclosure, creditor-defeating purpose, void/voidable/unenforceable agreements, impracticability, child-related hardship following a material change, unconscionable conduct, and specified superannuation issues, with additional provisions dealing with certain “non-referring State” scenarios.
What do “undue influence” and “unconscionable conduct” look like in practice?
A leading High Court decision on financial agreements is Thorne v Kennedy (2017). The High Court held that two substantially identical financial agreements (one pre-nuptial and one post-nuptial) should be set aside, including on the basis of unconscionable conduct and (for a majority) undue influence.
The judgment summary describes circumstances including significant time pressure before the wedding and an imbalance of power, including an ultimatum that the wedding would not proceed if the agreement was not signed, despite advice that the agreement was strongly against one party’s interests.
The lesson is not that financial agreements are generally unsafe or routinely set aside. It is that enforceability depends heavily on process and fairness markers at the time of signing, including genuine independence, time to consider options, and the absence of improper pressure. For these reasons it’s critical to speak to your trusted family lawyer in Wollongong, or local area, to make sure you’ve followed the ideal process.
Key takeaway: early advice and full disclosure are not formalities
Financial agreements can be useful tools, but they operate within a strict statutory framework. The agreement’s long-term enforceability is often shaped early, by the quality of disclosure, the time allowed for advice and negotiation, and whether each person’s consent is properly informed and voluntary. The Act is explicit that non-disclosure can amount to fraud, and it provides multiple pathways for an agreement to be set aside where the process or circumstances meet the statutory tests.