Binding Financial Agreements: What You Need to Know Before You Sign

<h2>What Is a Binding Financial Agreement?</h2><p>A <strong>Binding Financial Agreement (BFA)</strong> — sometimes called a "prenup" — is a legally enforceable contract between two people in a relationship that sets out how their financial assets, property, and liabilities will be divided if the relationship breaks down.</p><p>In Australia, BFAs are governed by the <em>Family Law Act 1975</em> (Cth). They can be entered into:</p><ul><li><strong>Before</strong> a marriage or de facto relationship begins (a pre-nuptial or pre-relationship agreement)</li><li><strong>During</strong> a marriage or de facto relationship</li><li><strong>After</strong> separation or divorce</li></ul><p>Unlike a court order, a BFA allows couples to reach their own financial arrangements without going to court — provided the agreement meets strict legal requirements.</p><hr/><h2>Who Can Enter a Binding Financial Agreement?</h2><p>BFAs are available to:</p><ul><li><strong>Married couples</strong> — under sections 90B, 90C, and 90D of the <em>Family Law Act 1975</em></li><li><strong>De facto couples</strong> — under sections 90UB, 90UC, and 90UD of the <em>Family Law Act 1975</em> (including same-sex couples)</li></ul><p>De facto relationships in Western Australia were brought under the federal family law system in 2002, so the same rules apply regardless of whether you are married or in a de facto partnership.</p><hr/><h2>What Can a BFA Cover?</h2><p>A BFA can deal with a wide range of financial matters, including:</p><ul><li><strong>Real property</strong> — the family home, investment properties, and land</li><li><strong>Superannuation</strong> — how super entitlements are split</li><li><strong>Business interests</strong> — shares, partnerships, and sole trader assets</li><li><strong>Debts and liabilities</strong> — mortgages, personal loans, and credit card debts</li><li><strong>Inheritances and gifts</strong> — assets received before or during the relationship</li><li><strong>Spousal maintenance</strong> — whether either party will pay or receive maintenance</li></ul><p>A BFA <strong>cannot</strong> deal with parenting arrangements or child support. Those matters are always determined by reference to the best interests of the child and cannot be contracted out of.</p><hr/><h2>The Strict Legal Requirements</h2><p>This is where many BFAs fall apart. For a BFA to be legally binding under the <em>Family Law Act</em>, <strong>both parties must receive independent legal advice</strong> before signing. Specifically:</p><ol><li><strong>Each party must obtain independent legal advice</strong> from a different solicitor about the effect of the agreement on their rights and the advantages and disadvantages of entering into it.</li><li><strong>Each solicitor must provide a signed statement</strong> confirming that advice was given. This statement must be attached to the agreement.</li><li><strong>The agreement must be in writing</strong> and signed by both parties.</li><li><strong>The agreement must not have been terminated</strong> or set aside by a court.</li></ol><p>These requirements are not optional formalities — they are the foundation of enforceability. An agreement signed without proper independent legal advice is not a BFA at all; it is simply a document.</p><hr/><h2>When Can a BFA Be Set Aside?</h2><p>Even a properly executed BFA can be challenged. Under section 90K (for married couples) and section 90UM (for de facto couples), a court may set aside a BFA if:</p><ul><li><strong>Fraud</strong> — a party failed to disclose a material matter, such as significant assets or debts</li><li><strong>Unconscionable conduct</strong> — one party took advantage of the other's vulnerability, lack of understanding, or emotional state at the time of signing</li><li><strong>Duress or undue influence</strong> — the agreement was signed under pressure</li><li><strong>Impracticability</strong> — circumstances have changed so significantly that it would be unjust to enforce the agreement (for example, a party becoming seriously ill or disabled)</li><li><strong>Defective execution</strong> — the formal requirements were not met</li><li><strong>Fraud on a third party</strong> — the agreement was designed to defeat a creditor's claim</li></ul><p>This is why the quality of the legal advice given at the time of signing is so important. A court will scrutinise not just the document, but the process by which it was created.</p><hr/><h2>Common Mistakes That Invalidate BFAs</h2><p>In our experience, BFAs are most commonly challenged — and set aside — for the following reasons:</p><h3>1. Inadequate disclosure</h3><p>Both parties must make full and frank disclosure of their financial circumstances. Hiding assets, undervaluing property, or failing to disclose debts can render the entire agreement void.</p><h3>2. Rushed execution</h3><p>Presenting a BFA to a partner days before a wedding, or during a period of emotional distress, is a significant red flag. Courts look carefully at the circumstances surrounding signing.</p><h3>3. Poor quality legal advice</h3><p>If the solicitor who provided advice did not genuinely explain the agreement's effect — or simply rubber-stamped it — the advice requirement may not be satisfied.</p><h3>4. Outdated agreements</h3><p>A BFA signed ten years ago may not reflect your current circumstances. Significant changes — a new business, an inheritance, children, or a major shift in one party's financial position — may make the original agreement unjust to enforce.</p><h3>5. Incorrect drafting</h3><p>BFAs must be drafted with precision. Ambiguous language, missing clauses, or incorrect references to legislation can create gaps that a court will not fill in your favour.</p><hr/><h2>Do I Need a BFA?</h2><p>A BFA is not right for everyone, but it is worth considering if:</p><ul><li>You are entering a relationship with significantly more assets, a business, or an inheritance than your partner</li><li>You have children from a previous relationship and want to protect their inheritance</li><li>You or your partner has significant debts</li><li>You own property jointly with family members or business partners</li><li>You have a family trust or complex investment structure</li></ul><p>Equally, a BFA is not a substitute for a will, a shareholder agreement, or proper estate planning. It should be part of a broader legal and financial strategy.</p><hr/><h2>BFAs After Separation: The Separation Agreement</h2><p>A BFA can also be used <strong>after separation</strong> to formalise a property settlement without going to court. This is sometimes called a "separation agreement" and can be a cost-effective alternative to litigation — provided both parties receive proper legal advice and the agreement is fair.</p><p>If you have already separated, you have <strong>12 months from the date of divorce</strong> (or <strong>two years from the end of a de facto relationship</strong>) to apply to the court for property orders. A BFA entered into within that window can resolve matters without court involvement.</p><hr/><h2>How BC Legal Can Help</h2><p>At BC Legal, we draft and review Binding Financial Agreements for clients across Western Australia. Whether you are planning ahead before a marriage or de facto relationship, or you need to formalise a property settlement after separation, we can advise you on:</p><ul><li>Whether a BFA is appropriate for your circumstances</li><li>What should and should not be included</li><li>The risks and limitations of the agreement you are considering</li><li>How to ensure the agreement will withstand scrutiny if it is ever challenged</li></ul><p>We provide the independent legal advice required by the <em>Family Law Act</em> and prepare the solicitor's certificate that must accompany every valid BFA.</p><hr/><h2>Book a Consultation</h2><p>If you are considering a Binding Financial Agreement — or you have been asked to sign one — <strong>do not sign anything until you have received independent legal advice</strong>.</p><p>BC Legal offers initial consultations for family law matters. Contact our Nedlands office to speak with one of our solicitors.</p><p><strong>Phone:</strong> (08) 6555 0000<br/><strong>Email:</strong> [email protected]<br/><strong>Address:</strong> Suite 4, 203 Stirling Highway, Nedlands WA 6009</p><p><em>This article is intended as general legal information only and does not constitute legal advice. You should seek independent legal advice tailored to your specific circumstances.</em></p>