When we think of prenuptial agreements in Australia, we often think of American television, the courtroom drama, with the family law attorney arguing over the terms of the ‘prenup.’
We often think of how offended one’s prospective spouse might be to hear that the other does not trust them enough to enter into the marriage without a prenup!
However, although we don’t technically have prenuptial agreements in Australia, we do have Binding Financial Agreements (or BFAs).
What is a Binding Financial Agreement?
Briefly and put simply, a Binding Financial Agreement is an agreement or contract that determines how assets are divided between the parties if the relationship ends. Or, as the Sydney Morning Herald recently described it:
‘In Australia a prenup is simply a binding financial agreement that sits under the Family Law Act. It’s a legal contract that can be entered into by married couples, same-sex couples and those in de facto relationships… an agreement between both parties that requires full disclosure of their financial position and assets at the time, and is designed to provide certainty to both parties before entering into marriage or a long-term relationship.’
Binding Financial Agreements are dealt with in Part VIIIA of the Family Law Act (Cth) 1975.
Prenuptial, Postnuptials, Cohabitation Agreement? They are all BFAs
In Australia, we use the term ‘Prenuptial agreement’ to describe a financial agreement entered into before a marriage (or de facto relationship) begins. Other types of BFAs are given different names depending on the stage of the relationship in which they are made.
- Binding Financial Agreements before marriage (this would be the equivalent of a prenup);
- Binding Financial Agreements during marriage; and
- Binding Financial Agreements after divorce.
These are dealt with by sections 90B, 90C and 90D of the Family Law Act, respectively.
Who uses prenups in Australia?
Prenups are typically used by individuals who want to be sure about how they separate property in advance in the event of a relationship breakdown. They are particularly beneficial for those with significant assets, businesses owned, or family members involved in their finances.
What is a prenup able to cover?
A prenup, or Binding Financial Agreement, can cover a wide range of financial matters, including:
- Property division after a relationship breaks down
- Spousal maintenance (spousal support)
- Protection of business interests and financial assets
- Inheritance rights
Are prenups a legally binding contract?
Yes, Binding Financial Agreements (BFAs) are legally binding contracts under Australian law, provided that both parties fully disclose their financial position and each party receives professional legal advice from independent family lawyers. It’s important that both parties have a clear understanding of how the agreement affects their financial future before signing anything.
What are the benefits of a prenup?
A prenup can offer a range of benefits, such as:
- Financial security in the event of a relationship breakdown
- Clarity on asset division and spousal maintenance
- Protection of business interests or significant assets
- Reduced emotional toll if a relationship ends unexpectedly
Why are there so many names for prenups and other family law financial agreements?
In Australia, the terminology surrounding prenuptial agreements can often be confusing. The term “prenup” is commonly used, but it is a broad reference to what is formally known as a Binding Financial Agreement (BFA). These agreements are legally recognised contracts that can be signed at different stages of a relationship. The key difference between the various names for these agreements lies in when they are signed—whether before, during, or after a relationship.
Here are the different types of Binding Financial Agreements, which go by various names depending on the timing and stage of the relationship:
Prenuptial Agreement (Pre-Marriage BFA)
Used before marriage or entering a de facto relationship to establish terms regarding the division of assets, property, and spousal support in the event of separation or divorce.
Alternative Names: Premarital Agreement, Marriage Contract, Pre-Marriage Financial Agreement. ‘Prenup’ (informal term)
Postnuptial Agreement (Post-Marriage BFA)
This agreement is created during a marriage or de facto relationship to determine the division of assets and other financial matters if the relationship ends. It can also address issues such as spousal maintenance (support).
Alternative Names: Post-Marriage Agreement, Post-Marriage Financial Agreement, Postnuptial Contract.
Cohabitation Agreement
Similar to a prenuptial agreement, a de facto agreement is used before or during a de facto relationship (when the couple is living together but not married). This agreement is designed to protect both parties’ financial interests before marriage and outlines how assets will be divided if the relationship ends.
Alternative Names: De Facto Agreement, De Facto Financial Agreement, Living Together Agreement
Separation Agreement (Post-Divorce BFA)
This agreement, used after a relationship has ended but before a divorce is finalised, outlines the division of property, assets, and arrangements for spousal maintenance after a separation or divorce.
Alternative Names: Separation Agreement, Divorce Settlement Agreement, Post-Separation Financial Agreement
Binding Financial Agreement (BFA) after Divorce
Used after a divorce or separation is finalised, this agreement governs the final division of property and assets after a divorce, especially for issues that were not resolved earlier. It can also address financial matters like spousal maintenance (alimony).
Alternative Names: Divorce Agreement, Post-Divorce Agreement, Divorce Financial Settlement
Financial Agreement for Business Interests
This specific type of business agreement can be used before, during, or after a relationship. They are specifically created to protect business interests or family businesses in the event of a relationship breakdown. This ensures that business assets are not split or jeopardised.
Alternative Names: Business Protection Agreement, Family Business Financial Agreement
What are the steps for getting a prenup?
- Both parties receive independent legal advice.
- Both parties must make full financial disclosure.
- A family lawyer drafts the agreement and ensures it complies with the Family Law Act.
Why is independent legal advice so important?
It’s crucial that both parties receive independent legal advice when drafting a prenuptial agreement to ensure that they fully understand their rights and obligations. A specialist family lawyer can provide tailored guidance on the legal framework under the Family Law Act 1975 and ensure that the agreement is voluntarily entered into, free from undue influence.
Without independent advice, a prenup could be deemed invalid if contested in family court, risking the protection of assets. It also safeguards each party’s best interests in the event of a separation.
How does the Family Law Act define prenuptial agreements in Australia?
Under the Family Law Act 1975, prenuptial agreements are formalised as Binding Financial Agreements (BFAs). These agreements are created voluntarily by two parties before marriage (or a de facto relationship) and outline the division of property acquired during the relationship.
The legal framework ensures that each party’s financial position, including spousal inheritance and assets, is properly disclosed, protecting both individuals in case of a relationship breakdown or unfortunate event.
Can a court overturn a prenup?
Yes, a court can overturn a prenup or Binding Financial Agreement under certain conditions. If the agreement was signed under undue influence, either party failed to disclose financial assets or did not provide for the best interests of one party; the family court may consider it invalid.
Additionally, if there is evidence that the agreement no longer reflects the couple’s current finances or if circumstances change significantly (e.g., birth of children or a lump sum inheritance), the agreement could be set aside.
How can I ensure a prenup’s validity?
To ensure the validity of a prenup, both parties must receive independent legal advice from specialist family lawyers. The agreement should be signed voluntarily and fully disclose all financial assets. It must also be drafted in accordance with the Family Law Act 1975 and be fair to both parties.
Ensuring that the drafting process is done correctly can prevent future legal challenges in family court and confirm the agreement’s enforceability should the marriage end.
What are the costs involved with getting a prenup agreement?
The costs of drafting a prenup can vary depending on the complexity of the couple’s finances and assets. Typically, the fees include specialist family lawyer charges for both parties to receive independent legal advice, drafting the agreement, and potential filing costs.
It is important to remember that while the upfront cost may seem significant, a successful prenup can protect assets and prevent expensive legal battles if the relationship ends, making it a worthwhile investment in the long run.
What happens if our circumstances change over time?
As circumstances change, such as acquiring new assets, entering previous marriages, or the birth of children, a prenup may need to be updated to reflect the new realities of the couple’s finances. In such cases, a postnuptial agreement or amendment to the original Binding Financial Agreement can be drafted.
It is essential to revisit the prenup regularly to ensure it still aligns with the couple’s needs, protects assets, and addresses financial issues or spousal maintenance in the event of separation.
Need assistance with preparing a prenup?
Despite the confusion around the terminology, prenuptial agreements or Binding Financial Agreements are not just for Hollywood movie stars or American courtroom dramas. If you would like to learn more or need assistance setting up a Binding Financial Agreement, then contact the team at Testart Family Lawyers on 1300 702 914 today.