Thinking about a prenup or a binding financial agreement? Most of us don't like to imagine a relationship ending, especially at the start of one. But for many Victorian couples, agreeing how property would be divided "just in case" brings real peace of mind. This guide explains how financial agreements work in Australia, what they can cover, and how to make sure yours will hold up.
What is a binding financial agreement?
A financial agreement is a written contract between two people about how their money, property and superannuation will be divided if their relationship ends. You may have heard it called a "prenup" or a "binding financial agreement". It works for both married couples and de facto couples, and is made under the Family Law Act.
The big advantage is control. If the agreement is properly made, the two of you decide the outcome, not a judge. That can save a great deal of time, cost and stress if you ever separate.
People make financial agreements for all sorts of reasons. Some want to protect a farm, business or home they owned before the relationship. Others want to make sure an inheritance, or family wealth, passes to their children from an earlier relationship. And many separated couples use a financial agreement to finalise their property settlement privately, without going to court.
When can you make a financial agreement?
A financial agreement can be made at any stage: before you move in together or marry, at any point during the relationship, or after you have separated or divorced.
If you are making an agreement before the relationship starts, you need to be genuinely planning to marry or live together. Simply thinking it might happen one day isn't enough.
An agreement made before or during the relationship sits quietly in the background. The parts dealing with property only come into effect if you separate, and one of you signs a written statement confirming that the relationship is over. If you have already separated when you sign the agreement, that statement can be included in the agreement itself.
What can a financial agreement cover?
A financial agreement can deal with just about everything you own or owe together or separately: the family home, investment properties, businesses, savings, shares, vehicles and debts. It can also deal with superannuation, which can be split between you just like other assets. If one of you benefits from a family trust, the agreement can cover that too.
An agreement made before or during the relationship can cover what you own now and what you might acquire in the future. An agreement made after separation can only cover what you had or acquired while you were together.
The agreement doesn't have to move anything from one person to the other. It can simply say that each of you keeps what is already in your own name.
The agreement can also deal with spousal maintenance, which is ongoing financial support from one partner to the other. If it does, it must say exactly who is to be supported and how much. A vague promise not to claim maintenance won't work.
One thing surprises many people. The law does not require a financial agreement to be fair. As one judge put it, the parties are "perfectly free to make a bad bargain". That is exactly why good legal advice before you sign is so important.
How to make a financial agreement binding
A financial agreement is only binding if it is made in exactly the right way, and the courts insist on strict compliance. The agreement must be in writing and signed by both of you. Before signing, each of you must get advice from your own, independent lawyer about how the agreement affects your rights, and its advantages and disadvantages for you. Each lawyer then signs a statement confirming that advice was given.
You can't share a lawyer, and the advice can't be a quick formality. Your lawyer needs to understand your circumstances, work out roughly what you might be entitled to if the matter went to court, and explain how the agreement compares. You don't have to follow that advice, but you must receive it.
If something goes wrong with these steps, a court does have some power to save the agreement where it would be unjust not to. But that is a safety net you don't want to rely on.
One trap for de facto couples: if you make an agreement while living together and later marry each other, the agreement stops being binding. If you think marriage may be on the cards, your agreement should be drafted to cover both situations, or you will need a new one.
Can a financial agreement be set aside?
A properly made financial agreement is hard to undo, and that is the point of having one. A court won't set an agreement aside just because one person's finances have changed, or because it looks unfair years later. It can only step in on a limited number of grounds.
The most common is dishonesty, such as one person hiding an asset, a debt or a source of income when the agreement was made. That is why full and honest financial disclosure is essential. An agreement can also be set aside if it was made to cheat creditors or a former partner, or if ordinary contract law would treat it as invalid, for example because someone was pressured into signing.
The court can also intervene if circumstances change so much that the agreement can no longer practically be carried out. Another ground is a significant change involving a child of the relationship, such as the birth of a child, where the child or the parent caring for them would suffer hardship if the agreement stood.
The best-known case is Thorne v Kennedy, decided by the High Court in 2017. A woman moved to Australia to marry a wealthy man. Days before the wedding, with her family already there, she was presented with a financial agreement and told the wedding would not go ahead unless she signed. Her lawyer advised her strongly not to sign. She signed anyway, and signed a second agreement after the wedding.
The High Court set both agreements aside, finding she had been unfairly pressured. The Court pointed to the take-it-or-leave-it approach, the emotional pressure of the looming wedding, the lack of time to reflect and the big difference in the couple's financial positions. The message is clear: an agreement signed under pressure, in a rush, or close to a wedding day is at real risk.
Financial agreement vs consent orders: which is right for you?
If you have already separated, there is another option: consent orders. These are orders made by the Family Court based on what the two of you have agreed. Like a financial agreement, they are final and binding.
The main difference is that a judicial officer checks consent orders to make sure the outcome is fair. You don't each need your own lawyer, and the result is usually harder to challenge later. For many separated couples, consent orders are the simpler and more cost-effective choice.
A financial agreement may suit you better if you want to plan ahead before or during a relationship, if you value privacy, or if you have agreed on an arrangement that a court may not see as fair, but which suits you both for your own reasons.
Tips for a prenup that holds up
If you are thinking about a financial agreement, the most important thing is to start early. If a wedding is coming up, raise the subject months ahead, not weeks. Give both of you time to talk it through, negotiate, get advice and think it over. An agreement that both people have genuinely shaped is far stronger than one handed over as a done deal.
Be completely open about your finances, and expect the same from your partner. Think ahead, too. Children, career breaks, inheritances and a move from living together to marriage can all change what is fair, and a well-drafted agreement plans for them. If your life changes significantly down the track, it may be worth updating or replacing the agreement.
Frequently asked questions
Are prenups legally binding in Australia?
Yes. A prenup, called a financial agreement under the Family Law Act, is legally binding if it is in writing, signed by both parties, and each party has received independent legal advice before signing.
Can de facto couples make a financial agreement?
Yes. De facto couples can make a financial agreement before moving in together, during the relationship, or after separating.
Do we both need a lawyer?
Yes. Each person must get advice from their own independent lawyer. Without it, the agreement is unlikely to be binding.
How much does a financial agreement cost?
The cost depends on how complex your finances are. At O'Haire Legal, we charge for family law property work on a fixed-fee basis, so you know the cost up front.
Financial agreement lawyers in Bendigo and regional Victoria
O'Haire Legal helps clients in Bendigo, Robinvale and across Victoria with prenups, binding financial agreements and family law property settlements. We can prepare an agreement for you, give you the independent legal advice the law requires, or review an agreement your partner has asked you to sign. Our family law property work is charged on a fixed-fee basis, so you will know the cost from the start.
To talk about your situation, call us on (03) 7064 0341 or email home@ohairelegal.com.au.
This article is general information only and is not legal advice. Everyone's situation is different, so please get advice about your own circumstances before acting.
