Often known by its American counterpart as a “prenup”, Binding Financial Agreements (BFAs), as they’re known in Australia, are private agreements between a couple that stipulate how property, assets and liabilities of the parties are to be dealt with on beak down of the relationship.
A couple may enter into a BFA:
Before getting married (section 90B Agreement);
Before entering into a de fact relationship (section 90UB Agreement);
During marriage (section 90C Agreement);
During a de facto relationship (section 90UC Agreement);
During separation but before filing for a divorce (section 90C Agreement);
After divorce (section 90D Agreement); or
After the break down of a de facto relationship (section 90UD Agreement).
BFAs are governed by the Family Law Act 1975 (Cth) (the Act) and must be drafted in accordance with the requirements set out in the legislation. If a BFA does not correctly comply with the Act, it could be deemed as void and set aside by the Court.
When drafting a BFA, it will need to:
Identify of the type of Financial Agreement that is being entered into i.e. Section 90B Agreement;
Identify the parties;
Include a ‘definitions’ section;
Include a list of ‘recitals’, which is a short background on each party and the relationship;
When the couple commenced cohabitation or when they plan to cohabit;
If applicable, when the couple married, or plan to get married;
If the relationship has ended, the date of permanent separation and/or divorce;
If there is a previous Financial Agreement in place, a Termination Agreement;
Operative provisions which set out how the assets and liabilities of the parties are to be dealt with on separation;
If desired, a release pursuant to the Succession Act;
If desired, a superannuation agreement;
If desired, a spousal maintenance agreement;
A list of the assets and liabilities held by each party individually, and if applicable, jointly, at the time of entering into the Agreement;
If entered into prior to a breakdown of the relationship, two undated and unsigned Separation Declarations; and
Two signed statements of independent legal advice (one for the solicitor of each party).
Other circumstances which may render a BFA as void, and therefore not binding on the parties:
Where the agreement was entered into under duress, by way of undue influence or unconscionable conduct.
The High Court case of Thorne v Kennedy  HCA 49 deals with a BFA entered into before marriage. Ms Thorne was a 36-year-old woman from overseas who married a 67-year-old property developer in Australia. Mr Kennedy was the significantly wealthier party to the relationship and therefore had his solicitors draft a BFA, to be entered into before marriage. Ms Thornes’ solicitors advised against the BFA, stating that it was a very unfair agreement. Mr Kennedy remained insistent that BFA had to be signed before marriage otherwise the marriage would not proceed. Ultimately, Ms Thorne signed the agreement. In this case the High Court held the Agreement was void for undue influence and unconscionable conduct.
A party failed to disclose assets or information relevant to the Agreement.
The Agreement was entered with the intent to defeat or defraud a creditor.
There have been significant changes to either or both parties’ circumstances which make it impractical to carry out the agreement.
Whilst it is usually the parties’ intention to be bound by the terms of a BFA, it is evident from the information above that if a BFA is not carefully drafted in accordance with the legislation, or if one party enters into the agreement as a result of undue influence, it highly likely that the agreement, if disputed, will be set aside by the Court and therefore no longer enforceable.
The best way to avoid having your BFA being set aside by the Court, is to get in touch with our Family Law team, who can provide you with detailed advice and assistance with drafting your BFA so that it lasts the test of time (so far as practically possible!).