The case law on binding financial agreements is constantly being fine-tuned. Sometimes a party will want to do everything possible to ensure it’s binding, at other times a party will want to move heaven and earth to have a now-regarded as unfavourable pre-nup set aside. Here are some things to note that have arisen as part of the ‘fine-tuning’ process over the years and what you should be aware of when entering into a Binding Financial Agreement in 2023.
What are Binding Financial Agreements?
Binding Financial Agreements (BFAs) are sometimes commonly referred to as “prenuptial agreements” or “prenups”. BFAs are legal contracts enabling a couple to agree in advance on an acceptable division of assets should they separate in the future. BFAs can be entered into either before commencing a de facto relationship or marrying, or during a de facto relationship or marriage. You can also enter into a BFA after separation when parties have agreed to the division of assets. This blog will focus on BFAs entered either before or during a de facto relationship or marriage.
BFAs can deal with property (including superannuation), financial resources and spousal maintenance. Some of the common matters that are addressed in a BFA include: how to protect particular assets or inheritances, how to look after children of previous relationships, how to preserve family businesses, and generally everything related to financial matters which might cause a potential dispute down the track.
One of the main benefits of BFAs generally is that they provide some certainty and clarity on issues thereby reducing the likely costs involved with contested property settlements.
But to be legally enforceable, a BFA needs to comply with certain requirements, in order to avoid being set aside by the courts.
Important things to know about Binding Financial Agreements
You can include ‘lifestyle clauses’, but they may not be actually binding.
A Binding Financial Agreement is about finances, so unless a lifestyle clause affects the outcome of a financial settlement in some way, it would likely not be enforceable by a court. Clauses about things like fidelity, weight gain or even the amount of times a couple will have sex have been rejected by our courts.
For a guide to what you should include, see our blog.
Spell out what the agreement should not include.
Leave nothing to chance. Under the provisions for financial agreements in the Family Law Act 1975, if your BFA doesn’t comprehensively deal with all aspects of your financial affairs, the court may still retain its powers to deal with those aspects. Therefore, spell out how all financial and property aspects will be dealt with, including whether or not spousal support is to be paid. Make sure it’s expressly clear in the agreement that the parties acknowledge that no provision of spousal support is needed or wanted, if that is what you have agreed with your spouse.
You can’t waive the right to get independent legal advice.
Parties wishing to enter a BFA must obtain independent legal advice before signing a BFA and must obtain a Certificate of Independent Legal Advice to prove they have done so.
Recently, a BFA was ruled invalid as the husband had mistakenly thought that by him not obtaining legal advice, he had simply waived it.
Also ensure the advice you receive is ideally obtained from a practitioner with solid experience in family law (e.g. an Accredited Specialist in family law).
The specific content of that legal advice matters.
In a recent case, the lack of genuine independent legal advice voided one couple’s prenup, as the legal advice that had been obtained in fact did not amount to real advice, merely a reading of the agreement out aloud. Ensure your BFA meeting takes longer than 15 minutes and includes a written letter of advice!
Check your Certificate of Independent Legal Advice once your solicitor issues it to you.
Ensure your solicitor’s certificate that advice was provided is up to date and you are not caught out by using old precedents using outdated wording.
If a party isn’t fluent in English, get an interpreter.
It can put a party at a “special disadvantage” when signing a BFAs, threatening the validity of the agreement.
A BFA can be set aside in some (limited) circumstances.
With the purpose of specifying how assets and liabilities are to be divided if a couple splits, there are some circumstances where the original BFA will be deemed invalid. For example, if there is a material change in circumstances after the agreement was signed, relating to the care, welfare and development of a child of the marriage or de facto relationship and if, as a result of that change, either the child or the party caring for the child will suffer hardship if the Court does not set the Agreement aside.
You can enter a Binding Financial Agreement before, during or even after a marriage or relationship.
Pre-nups are those signed before marriage, but you can still sign a BFA as a post-nup to protect your assets and future earnings. Some couples might look into getting post-nups years later if problems start to arise. Or, after they’ve been together for some time, unanticipated circumstances could occur, such as receiving a large gift or inheritance, or entering into a business venture.
As with the more well-known pre-nuptial BFA, a post-nuptial BFA sets out how assets are divided on divorce or death, with the difference being that a post-nuptial BFA is made at a time after a marriage has occurred. Post-nuptial BFAs clarify each spouse’s financial contributions to a marriage, their assets and liabilities and the agreed division of those assets and liabilities in the event of separation.
Consider if there have been material changes.
Be aware that material changes in future circumstances may be grounds to challenge a BFA. The law stipulates that a BFA may be set aside if circumstances have arisen since the BFA was made and it is impracticable for the BFA or part of the BFA to be carried out.
This is particularly so for BFAs that are signed either before or during a de-facto relationship or marriage, where there may be more uncertainty about changes in future circumstances (e.g. if the couple has children and the terms of the BFA have not taken that into consideration and one person suffers hardship).
Don’t get ‘ink on your wedding dress’.
BFAs are also vulnerable to being set aside for other reasons, such as if a court determines that a BFA has been signed under duress. There have been a number of “ink on the wedding dress” cases before the courts where BFAs were set aside after partners attempted to get future spouses to sign agreements mere days before a wedding—and in one case, actually on the way to the wedding venue.
Don’t sign counterparts.
Don’t sign counterparts, like when exchanging contracts for sale of land. For prenups, it is safest to have one original, signed by everyone, and distribute certified copies of the agreement to everyone.
Review your BFA periodically.
BFAs should be reviewed about every two years or after a significant life event (such as the birth of a child, acquiring significant assets).
Consider a collaborative pre-nup.
Collaborative law is wonderful for negotiating a “good divorce”, but it can also be useful for happy couples who wish to negotiate and sign a Binding Financial Agreement before getting married. Read more.
Be aware of how things may look “influential”.
It may be as innocent as making the appointments for your ex and their lawyer, or you may actually be trying to persuade your ex about their choice of “independent” lawyer. But whatever you do, you need to consider how a court might interpret your actions lest something is interpreted as “undue influence”. Other aspects of your relationship, such as if one party is more controlling or engages in family violence, can also be important to a court when it is deciding if a BFA should be set aside. Make sure you discuss any such factors with your family lawyer. Which brings us to…
What you need to tell your lawyer when obtaining a BFA.
A lot of factors go into the advice your family lawyer will give you about a Binding Financial Agreement. All aspects are examined about the parties’ occupations, current earnings and future capacity, superannuation, assets, liabilities, as well as the usual relevant details about when the relationship started, when cohabitation or separation occurred, and details of any children of the relationship.
If you would like assistance drafting or reviewing a Binding Financial Agreement, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law.
Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.
You might also like to read the Family Court’s official guidance on financial agreements.