Do Binding Financial Agreements Really Work? An Australian Perspective

BFAs “work” when they are carefully conceived, transparently negotiated, and meticulously documented in accordance with statutory formalities and equity principles. They are vulnerable to being set aside where there is non‑compliance with formal requirements, deficient disclosure, procedural unfairness, or vitiating factors such as undue influence, duress, or unconscionable conduct. The High Court’s decision in Thorne v Kennedy [2017] HCA 49 makes plain that BFAs are not ironclad—substance and fairness matter as much as form.

What Is a BFA and When Are They Used?

• A BFA is a private contract that allocates financial rights and obligations between spouses or de facto partners, either:

  • Before marriage (s 90B) or entering a de facto relationship (s 90UB),

  • During the relationship (s 90C; s 90UC), or

  • After separation (s 90D; s 90UD).

• They can deal with:

  • Division of property (including businesses, trusts, and investments),

  • Superannuation splitting (subject to regulatory requirements and trustee notification),

  • Spousal maintenance (subject to statutory limits),

  • Future acquisition of property and treatment of inheritances or windfalls.

• BFAs cannot validly determine parenting arrangements or child support (separate regimes apply).

When Do BFAs “Work”? Practical Utility and Effectiveness

BFAs are effective where they:

• Are used for asset‑protection planning (e.g., quarantining pre‑relationship assets, preserving family business continuity, safeguarding anticipated inheritances),

• Provide clarity, privacy, and speed compared to litigated outcomes,

• Reduce uncertainty by specifying valuation mechanisms, adjustment formulas, and implementation timelines,

• Are structured to obtain roll‑over relief for capital gains tax and stamp duty relief on relationship‑breakdown transfers, where statutory criteria are satisfied.

They are less effective or prone to challenge where they:

• Are executed at the last minute or under pressure,

• Disproportionately favour one party without adequate explanation, process fairness, or compensating benefits,

• Are supported by inadequate or perfunctory legal advice,

• Are premised on incomplete or misleading financial disclosure,

• Fail to anticipate foreseeable life events (e.g., birth of children, health issues, business liquidity constraints).

The Courts Can Set Aside BFAs on the following grounds:

• Fraud or non‑disclosure (including material non‑disclosure of assets or liabilities);

• Intention to defeat or reckless disregard of creditors’ interests;

• Impracticability (e.g., the agreement cannot be carried out);

• Material change in circumstances relating to the care, welfare, and development of a child of the relationship, causing hardship to a party if the agreement stands;

• Unconscionable conduct, undue influence, or duress;

• The agreement is void, voidable or unenforceable for general contractual reasons (e.g., mistake, misrepresentation).

Do Courts Enforce BFAs? Yes—where BFAs are properly conceived, compliant, and fair in process, courts routinely uphold them. Enforcement occurs under the Act and the court’s general powers, including:

• Declarations as to validity and binding effect,

• Orders giving effect to the agreed property division or requiring specific performance,

• Ancillary orders to implement superannuation splits (subject to trustee procedural fairness and operative time requirements).

However, courts scrutinise the agreement’s formation and operation. A BFA is not an impenetrable shield; it will not “work” if the process or substance offends equitable principles or statutory safeguards.

Best‑Practice Measures That Make BFAs “Work”

• Start early: Avoid last‑minute execution. Allow time for negotiation, reflection, and revisions.

• Full disclosure: Provide comprehensive and current asset, liability, income, and superannuation disclosure, with supporting documents and valuations where appropriate.

• Independent, substantive legal advice: Ensure each party receives tailored advice on rights, alternatives (including court outcomes), and the advantages/disadvantages at the time.

• Process fairness: Avoid pressure, ultimatums, and artificial deadlines (e.g., weddings, visa expiries). Consider interpreters where needed.

• Proportionality and rationale: Document the commercial and relational rationale (e.g., protection of pre‑existing assets, compensation via lump sums, insurance, or stepped benefits).

• Execution hygiene: Correct certificates of independent advice, proper witnessing where required, exchange of signed counterparts, and secure retention of originals.

• Implementation plan: Concrete steps, timelines, and responsibility for transfers, refinance, and consents; include default remedies for non‑performance.

BFAs tend to fail when the process is rushed or coercive, disclosure is incomplete, advice is superficial, or outcomes are egregiously one‑sided without cogent justification.

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