Binding Financial Agreements (Prenups) in Australia: How They Work, What They Cost and When Courts Throw Them Out

A Binding Financial Agreement (BFA) is a private, written contract between two people that sets out how their property, money and financial resources will be divided if their relationship ends. The Federal Circuit and Family Court of Australia notes that people often call these "prenuptial agreements" or "prenups", but the correct legal term under the Family Law Act 1975 is a financial agreement.

A BFA lets a couple settle these questions privately and in advance, rather than leaving them to a court after separation. If it is validly made and not later set aside, it ousts the court's usual power to divide property between the parties, which is the whole point of having one.

It is not only for the wealthy or for people marrying. A BFA can protect a business, an inheritance, assets brought into the relationship, or simply give both people certainty. It can be made by couples who are engaged, already married, or in a de facto relationship.

Importantly, a financial agreement is a contract, not a court order. No judge approves it when you sign it. That is why the formal requirements, especially independent legal advice and full disclosure, matter so much: they are what make a private contract enforceable in family law.

The Family Law Act allows a financial agreement to be made at three points in time for married couples, with parallel provisions for de facto couples. The timing determines which section of the Act the agreement is made under.

For married couples, the sections are:

• Section 90B: before marriage (the classic "prenup")
• Section 90C: during the marriage
• Section 90D: after a divorce order is made

For de facto couples (in every state and territory except Western Australia), the equivalent sections are:

• Section 90UB: before the de facto relationship begins
• Section 90UC: during the de facto relationship
• Section 90UD: after the de facto relationship breaks down

An agreement made before a wedding only comes into effect if the marriage actually takes place. Couples who are already separated also use these agreements to formalise a property settlement without going to court, as an alternative to consent orders.

To be legally binding, a financial agreement must satisfy the technical requirements in section 90G of the Family Law Act (and the equivalent s90UJ for de facto agreements). These are strict, and getting them wrong can render the whole agreement unenforceable.

The core requirements under s90G(1) are:

• The agreement is signed by both parties.
• Before signing, each party was provided with independent legal advice from a legal practitioner about the effect of the agreement on that party's rights, and about the advantages and disadvantages of making the agreement.
• Each party was given a signed statement from their lawyer confirming that this advice was provided.
• A copy of that statement is given to the other party or their lawyer.

"Independent" means each person must have their own, separate lawyer. The same lawyer cannot advise both of you, because their interests can conflict. This is the single most important requirement, and it is also why a valid BFA always involves two sets of legal fees.

If a technical requirement is not met, the agreement is not automatically saved, but a court does have a discretion under s90G to declare it binding anyway if it would be unjust and inequitable not to. You should never rely on that safety net, because whether it applies is entirely up to the court.

A financial agreement can deal with how property and financial resources are divided if the relationship breaks down, and it can deal with spousal maintenance (financial support for a former partner). It can cover assets owned now and assets acquired later during the relationship.

There are real limits. A BFA cannot lock in arrangements for children. It cannot determine who a child lives with or spends time with, and it cannot prevent a court from making parenting orders in a child's best interests.

A BFA also cannot remove child support obligations. Child support is dealt with separately, through Services Australia or a registered Binding Child Support Agreement, which is a different document with its own rules. Do not confuse the two.

Spousal maintenance clauses have an extra trap. Under s90F, a maintenance provision can be void if, at the time the agreement takes effect, one party cannot support themselves without an income-tested pension, allowance or benefit. In other words, you cannot use a BFA to push a former partner onto Centrelink and walk away.

Because each person must have their own lawyer, you are effectively paying for two legal advices on the one agreement. That structure is the biggest driver of cost, and it is unavoidable if you want the agreement to be binding.

As an indicative guide based on what Australian family law firms commonly publish, a straightforward BFA tends to cost in the region of $3,000 to $10,000 in total across both parties, though figures vary widely between firms and matters. Some firms offer fixed-fee drafting and fixed-fee review-and-advice packages, while others charge hourly.

Where there are trusts, companies, self-managed super funds, business interests or significant or unusual assets, costs commonly rise to $15,000 to $20,000 or more, because the drafting and advice become far more involved.

These figures change over time and differ by firm and complexity, so treat them as a starting point only and get a written quote before you commit. Paying for careful drafting is usually money well spent: a cheap or DIY agreement that gets set aside can cost vastly more in a later court fight.

A BFA is binding, but it is not untouchable. A court can set one aside, but only on the limited grounds in section 90K of the Family Law Act (and the equivalent s90UM for de facto agreements). If none of these grounds apply, the agreement stands.

The grounds in s90K(1) include:

• The agreement was obtained by fraud, including non-disclosure of a material matter.
• A party entered the agreement to defraud or defeat a creditor, or with reckless disregard for a creditor's interests.
• The agreement is void, voidable or unenforceable (which captures ordinary contract problems such as duress, undue influence and mistake).
• It has become impracticable to carry out the agreement, or part of it, because of circumstances that have arisen since it was made.
• Since the agreement, a material change has occurred relating to the care, welfare and development of a child of the relationship, and as a result the child or a party caring for the child would suffer hardship if the agreement were not set aside.
• A party engaged in conduct that was, in all the circumstances, unconscionable.
• Certain superannuation flagging or unsplittable-interest situations exist.

The two grounds people run into most are fraud or non-disclosure (hiding assets or debts) and unconscionable conduct (taking advantage of someone in a weaker bargaining position). Full, honest financial disclosure by both parties is the best protection against the first, and unpressured, properly advised signing well ahead of any deadline is the best protection against the second.

The leading case is Thorne v Kennedy [2017] HCA 49, decided by the High Court of Australia. A woman who had moved to Australia signed a prenuptial agreement at the insistence of her wealthy, much older fiancé just days before the wedding, having been told the wedding would not go ahead unless she signed. She signed despite her own solicitor advising strongly against it, and signed a second, similar agreement after the marriage.

The High Court unanimously set both agreements aside for unconscionable conduct, and a majority also found undue influence. The fact that she had received clear independent legal advice not to sign, and signed anyway, was itself treated as a sign that something was wrong with how she came to sign.

The practical lesson is blunt: ticking the "independent legal advice" box does not guarantee a BFA will hold up. How and when the agreement is signed matters too. Presenting an agreement at the last minute, or applying pressure such as a wedding ultimatum, creates a real risk it will later be unwound.

If you want a BFA to be durable, give it time. Start well before any wedding, give your partner genuine opportunity to get advice and negotiate, disclose everything, and avoid anything that looks like coercion.

For married couples, the Family Law Act 1975 applies right across Australia, including in Western Australia. The position is different for de facto couples in WA.

When de facto property law was referred to the Commonwealth, every state and territory took part except Western Australia. As a result, de facto financial matters in WA are governed by the state-based Family Court Act 1997 (WA) rather than the federal Family Law Act.

This means a de facto financial agreement for a WA couple is made under different provisions (for example, around s205ZN of the Family Court Act 1997), not under Part VIIIAB of the Family Law Act. The concept is the same, a binding agreement with independent legal advice, but the governing law and section numbers differ.

If you are a de facto couple in Western Australia, make sure your lawyer is drafting under the correct WA legislation. An agreement drafted under the wrong Act may not do what you intend.