"Prenups don't hold up in Australia." We hear it at dinner parties, from friends, and occasionally from other advisers. It is wrong, or at least, it is only half right. Binding financial agreements (BFAs), as prenups are called under Australian law, are regularly upheld. They are also regularly set aside. The difference almost always comes down to how they were made.
This article explains what a BFA is, what the law requires, why some agreements fail, and how to make one that holds.
This is general information, not legal advice.
What is a binding financial agreement?
A BFA is a written agreement between two people about how their property and financial resources will be dealt with if their relationship ends. It can also deal with spousal maintenance. Agreements can be made:
- before marriage (the classic "prenup");
- during marriage;
- after separation; and
- after divorce.
De facto couples, and people about to become de facto partners, can make equivalent agreements.
If an agreement is binding, the court cannot make property orders inconsistent with it. That is what gives BFAs their power: they take the division of property out of the court's discretion.
What makes an agreement binding
The Family Law Act sets strict requirements. An agreement is binding only if:
- it is signed by both parties;
- before signing, each party was provided with independent legal advice from a legal practitioner about the effect of the agreement on their rights, and about the advantages and disadvantages to them of making it;
- either before or after signing, each party was given a signed statement by their lawyer confirming that advice was provided; and
- the agreement has not been terminated or set aside by a court.
These requirements are mandatory. Historically, some agreements failed on technicalities: a missing certificate, advice given after signing, or a certificate in the wrong form. Amendments over the years have allowed courts some latitude to uphold agreements with minor defects where it would be unjust not to, but relying on that is risky and expensive. The right approach is to get every formality right.
Why agreements are set aside
Even where the formal requirements are met, the court can set aside an agreement on grounds set out in the Act. The main ones are:
Fraud, including non-disclosure
An agreement can be set aside if it was obtained by fraud, which includes non-disclosure of a material matter. If one party understated their assets, failed to mention a business interest, or concealed an expected inheritance, the agreement is vulnerable. This is why thorough, documented financial disclosure, usually annexed to the agreement, is essential.
Duress, undue influence and unconscionable conduct
An agreement can be set aside if it is void, voidable or unenforceable under general contract law. That includes where it was signed under duress, as a result of undue influence, or through unconscionable conduct: taking unfair advantage of a party's special disadvantage.
The leading case is Thorne v Kennedy (2017). A wealthy man and a woman from overseas made a prenuptial agreement days before their wedding, and a further agreement shortly after. The woman had moved to Australia, left her life behind, and was told that without the agreement there would be no wedding. Her independent lawyer advised her strongly not to sign, describing the agreement as the worst she had seen. She signed anyway.
The High Court set both agreements aside, finding they were the product of unconscionable conduct and undue influence. The Court identified factors relevant to whether a party's free will was overborne, including:
- whether the agreement was offered on a basis that it was not subject to negotiation;
- the emotional circumstances in which it was entered, including any explicit or implicit threat to end the relationship;
- whether there was any time for careful reflection;
- the nature of the parties' relationship;
- the relative financial positions of the parties; and
- the independent advice received and whether there was time to reflect on it.
Importantly, the Court made clear that receiving independent advice, even strong advice not to sign, does not by itself protect an agreement where a party had no real choice.
Impracticability
An agreement can be set aside if circumstances have arisen since it was made that make it impracticable for it, or part of it, to be carried out.
Material change relating to children
An agreement can be set aside where, since it was made, there has been a material change in circumstances relating to the care, welfare and development of a child, and as a result a party or the child would suffer hardship if it were not set aside. The birth of a child after an agreement that did not contemplate children is a common scenario.
Other grounds
Other grounds include that the agreement was entered into to defraud or defeat a creditor, or with reckless disregard of a creditor's interests, and that a party has engaged in unconscionable conduct in respect of the making of the agreement.
What courts look for in an agreement that holds
Agreements that survive challenge tend to share the same features.
Time
They are negotiated and signed well before the wedding: months, not days. There is time to reflect, negotiate and take advice.
Genuine negotiation
Both parties' lawyers have had input, and the drafts show changes. A take-it-or-leave-it document is more vulnerable.
Full disclosure
Both parties have exchanged detailed financial disclosure, annexed to the agreement, so neither can later claim they did not know.
Genuinely independent advice
Each party has their own lawyer, chosen by them, with enough time to give proper advice.
Fairness in context
An agreement does not have to be equal, and it can be strongly in one party's favour. But an agreement that leaves a financially dependent party with almost nothing after a long relationship, and makes no provision for children, is more likely to attract scrutiny.
Anticipation of change
Good agreements anticipate the birth of children, long duration, illness and changes in wealth, with provisions that adjust accordingly.
Correct execution
Every signature, certificate and formality is in place, and the originals are properly held.
Common mistakes
- Starting a few weeks before the wedding.
- Presenting the agreement as a condition of the wedding going ahead.
- Using the same lawyer, or a lawyer chosen and paid for by the other party without appropriate safeguards.
- Incomplete disclosure, especially of business interests, trusts or expected inheritances.
- Ignoring superannuation.
- Failing to consider what happens if children are born.
- Never reviewing the agreement after major life events.
- Relying on an overseas agreement that does not meet Australian requirements.
Agreements after separation
BFAs are also used after separation as an alternative to consent orders. They offer privacy (they are not filed with the court) and flexibility. But because no court reviews them for fairness at the time, the same care is needed: disclosure, independent advice, and precise drafting. Properly drafted, they can also attract capital gains tax rollover relief and NSW duty exemptions.
So, do prenups hold up?
Yes, when they are made properly. The cases where agreements have been set aside are, overwhelmingly, cases where something went wrong in the making: pressure, haste, concealment, or a failure of formality. Those are all avoidable.
If you are considering a BFA, or have been asked to sign one, start early, insist on proper disclosure, and choose lawyers who will take the time to get it right. See our page on binding financial agreements, or read about broader asset protection.
This article is general information about the law as at the date it was last reviewed. It is not legal advice and does not take your circumstances into account.