What Is a Binding Financial Agreement?

A binding financial agreement, often shortened to BFA, is a private written agreement between two people that sets out how their property, finances and superannuation will be divided. Couples can make one before they marry or move in together, during the relationship, or after a separation or divorce. Unlike consent orders, a binding financial agreement is not filed with or approved by a court. That gives couples a private way to settle things, and it also means the agreement has to meet strict requirements under the law to be valid.

This article explains how binding financial agreements work in Australia, what makes one valid, how they differ from consent orders, and when each option tends to suit. It is general information only, not personal legal or financial advice.

How a binding financial agreement works

Binding financial agreements are governed by the Family Law Act 1975. The Act sets out different sections depending on your situation:

• For married couples, you can make an agreement before marriage (section 90B), during the marriage (section 90C), or after a divorce order (section 90D).
• For de facto couples, you can make an agreement before the relationship (section 90UB), during it (section 90UC), or after it ends (section 90UD).

An agreement made before a marriage or a de facto relationship is sometimes called a prenuptial agreement, though that term does not appear in the legislation.

Because a binding financial agreement is a private contract rather than a court order, no judge or registrar checks whether it is fair. The parties decide the terms between themselves, then formalise them with independent legal advice on each side.

The independent legal advice requirement

Independent legal advice is not optional. It is the cornerstone of a valid binding financial agreement. Under section 90G (for married couples) and section 90UJ (for de facto couples), an agreement is only binding if each person has received independent legal advice, from their own separate Australian legal practitioner, before signing.

The advice must cover two things:

• The effect of the agreement on that person's rights.
• The advantages and disadvantages, at the time the advice is given, of making the agreement.

Each person's lawyer then provides a signed statement confirming that this advice was given. A copy of that statement is exchanged with the other party or their lawyer. Without independent advice and these signed statements, the agreement may not be binding.

This requirement exists to make sure both people genuinely understand what they are agreeing to and what rights they may be giving up. Shared or joint legal advice does not satisfy it. Each person needs their own lawyer.

Binding financial agreements compared with consent orders

Both tools can formalise a property settlement, but they work very differently.

A binding financial agreement is a private contract. It is not reviewed by a court, so there is no requirement that the outcome be just and equitable. The parties are free to agree to terms that a court might not have ordered.

Consent orders, by contrast, are approved by the Federal Circuit and Family Court of Australia. You submit your proposed terms and a registrar must be satisfied the orders are just and equitable before approving them. This adds a layer of independent oversight.

A few practical differences tend to matter most:

• Fairness check. Consent orders are assessed for fairness by the court. A binding financial agreement is not, which is one reason independent legal advice is mandatory.
• Flexibility. A binding financial agreement can cover matters before, during or after a relationship, including future arrangements. Consent orders are generally made around the time of separation.
• Cost and complexity. Consent orders are often simpler and less expensive to prepare, because they use approved court forms. A binding financial agreement must be carefully drafted to each couple's circumstances and requires a lawyer on each side.

There are also time limits to keep in mind for court-based options. Applications for property orders, including consent orders, are generally expected within 12 months of a divorce becoming final, or within two years of the end of a de facto relationship. Outside those windows you usually need the court's permission to apply (see section 44 of the Family Law Act). A binding financial agreement does not carry the same time limit, which is one reason some couples consider it after those periods have passed.

What a valid agreement needs

To be binding, an agreement must:

• Be in writing and signed by both parties.
• Be made with each party having received independent legal advice before signing, covering the effect on their rights and the advantages and disadvantages of the agreement.
• Include a signed statement from each lawyer confirming that advice was given, with copies exchanged.
• Not have been terminated or already set aside by a court.

What an agreement can cover

A binding financial agreement can deal with how property and financial resources are divided, spousal or partner maintenance, and superannuation splitting. Many couples use one to protect assets brought into the relationship, to set out arrangements for a business or an inheritance, or to give each other certainty about what happens if the relationship ends. Full and honest financial disclosure matters here, because hiding assets can later put the agreement at risk.

When a court can set an agreement aside

A binding financial agreement is designed to be final, but it is not beyond challenge. A court can set one aside, but only on specific legal grounds set out in section 90K (for married couples) and section 90UM (for de facto couples). These include:

• The agreement was obtained by fraud, including failing to disclose a material matter such as hidden assets.
• The agreement is void, voidable or unenforceable. This can capture ordinary contract problems like duress, undue influence, misrepresentation or unconscionable conduct.
• Circumstances have changed since the agreement was made so that it is impracticable to carry out all or part of it.
• A material change has occurred relating to the care, welfare and development of a child, and a child or a carer would suffer hardship if the agreement stood.
• A party engaged in conduct, in connection with making the agreement, that was in all the circumstances unconscionable.

It is worth being clear about one point. A court will not set an agreement aside simply because it turned out to be a bad deal or seems unfair. Because there is no court fairness check at the time of signing, the law instead relies on these specific grounds. The High Court decision in Thorne v Kennedy (2017) is a well known example where agreements were set aside for unconscionable conduct involving significant pressure on a vulnerable party.

Weighing up the options

Binding financial agreements suit couples who want certainty and privacy, who have assets they want to keep clearly defined, or who are settling outside the usual court time limits. The trade-off is that they require careful drafting and a lawyer on each side, and they are harder to undo if circumstances later change.

Consent orders suit couples who want the added comfort of a court confirming the outcome is just and equitable, and who are settling around the time of separation.

There is no single right answer. The best choice depends on your relationship, your assets and what you each want certainty about.

A clear starting point

Understanding roughly where you stand can make these conversations calmer and better informed. Separately offers a property settlement assessment that helps you see a realistic picture of how things might be divided, so you can approach legal advice with a clearer head. Any formal settlement, whether a binding financial agreement or consent orders, needs independent legal advice. Separately's assessment is a starting point, not a substitute for that advice.

Wherever you are in the process, taking it one informed step at a time tends to make the path ahead feel a little clearer.