The Aussie 'Prenup': Understanding Binding Financial Agreements

Thanks to the prevalence of Hollywood and American terminology, most people would be familiar with the term ‘Prenup’ or Prenuptial Agreement. But did you know in Australian law, there is actually no such thing as a ‘Prenuptial Agreement’? Instead, the Family Law Act refers to what we know as ‘Binding Financial Agreements’. Often termed the ‘Australian Prenup’ in family law circles, a ‘Binding Financial Agreement’ is an agreement entered into by two parties who are either in or entering a de-facto relationship or marriage which does the following:

• Sets the terms for an out-of-court settlement in the event of separation and/or divorce
  
• Sets out that both parties are contracting out of the rights they have to go to court under the Family Law Act

NOTE:

How do you know if you’re in a de-facto relationship? A de-facto relationship is usually defined as follows: “when two people are not married but live together or have lived together as a couple on a genuine domestic basis. The same laws apply to same-sex couples as to heterosexual (different-sex) couples.”

Wanting to enter or discussing the possibility of a Binding Financial Agreement can be a difficult thing to bring up with another party or talk about openly. In this article, we look at when these agreements should be considered, how they should work and how to arrange them.

When should you consider an ‘Australian Prenup’ Binding Financial Agreement?

No one finds themselves in a de facto relationship or enters into a marriage in the hope that things end with separation and/or divorce (or at least that’s what we hope). However, there are times where one or both parties in a relationship may wish to reach an understanding of what things would look like financially in the event that the relationship does not work out. This is when a Binding Financial Agreement should be discussed. As set out above, a Binding Financial Agreement is used to:

• Set the terms for an out-of-court settlement in the event of separation and/or divorce
  
• Set out that both parties are contracting out of the rights they have to go to court under the Family Law Act

Freeman Family Law has extensive experience in working on Binding Financial Agreements. Typically these agreements are sought in (but are in no way limited to) the following scenarios:

• Second marriages
  
• When one party has a significant amount of assets acquired prior to the relationship
  
• When one or both party already has children

Of course, they can equally apply to first marriages or de-facto relationships, regardless of the assets either party is bringing to the relationship. A good Binding Financial Agreement will also consider what might happen in the future. For example, how will assets be divided in the event that the couple has children?

If you find yourself wondering about any of these questions before marriage or now that you’ve found yourself in a de facto relationship, then it might be a good time to talk to your partner about a Binding Financial Agreement and seeking some legal advice specific to your circumstances.

How does a Binding Financial Agreement work and what pitfalls should you avoid?

A Binding Financial Agreement is not by default, a foolproof way of guaranteeing that assets will be split the way you want in the event of a breakdown of your relationship. These documents are complex and require a strong knowledge of the law. There are a number of common pitfalls that often bring these agreements undone, so it is crucial that if the ‘Aussie Pre-Nup’ is something you are interested in doing prior to marriage or once you’ve found yourself in a de-facto relationship that you consult with experts such as Freeman Family Law. For a Binding Financial Agreement to be binding, the following requirements must be met:

• Both parties must sign the contract and the contract must satisfy all relevant requirements of a binding contract, including:
  
  – People entering the contract must intend the contract to be binding
  
  – An offer is made by one person and is freely accepted by another
  
  – People making the contract have legal capacity to form a contract

• Each party must have independent and individual legal advice
  
• The formalities required by the Family Law Act 1975 are complied with by the parties in the agreement

So, when can these agreements be contested? Some, but not all of the grounds for contesting an agreement include:

The agreement is vague or unclear: it is essential that the agreement is clear and consistent in its terms. An agreement that contains ‘sloppy’ drafting or is unclear or vague may be overturned wholly or in part by the Court. 

The agreement was signed under duress or with the pressure of a deadline: If an agreement is presented to the other party the day before the wedding, for example, the agreement may not be binding. In some cases, it might be advantageous to wait until after the wedding to ensure that no party can argue that the agreement was entered into under duress.

The agreement does not comply with the formalities prescribed by the Family Law Act 1975: Care must be taken by the solicitor drafting the document to ensure this is done. Failure to do so may affect the enforceability of the agreement.  

Of course, there are a number of other grounds on which an agreement may be contested. That is why it is crucial that both parties receive independent and individualised legal advice from Accredited Specialists with expertise in this area of the law. Whilst this might make the process of forming an agreement take longer, the more discussions that take place in forming the agreement, the stronger the agreement will be.

How should you arrange a Binding Financial Agreement?

Perhaps the most difficult part of entering a Binding Financial Agreement is finding a way to broach the subject with your partner. Typically, this can be a bit easier for parties entering a second or third marriage or a de-facto relationship after marriage. While these agreements can take a while to negotiate and may be sensitive to bring up in general, they can provide peace of mind and provide significant savings in the future, in terms of legal costs, emotional pain and stress and time should the relationship break down.

If you believe you may require a Binding Financial Agreement, you should discuss the possibility with your partner and make an appointment with Freeman Family Law to discuss your requirements.