Prenups, postnups, and binding financial agreements

A close mate of mine got remarried last year. He'd been through a divorce that cost him around $90k including lost time. The new partner, also previously divorced, pushed for a Binding Financial Agreement before the wedding. He was surprised by how matter-of-fact she was about it. I wasn't. Both of them had already paid the tuition.

The BFA cost them about $7,500 between them. They both got independent legal advice. They both signed. It sits in a drawer. It will probably never be used. Which is the point.

Australians call them BFAs. The rest of the world calls them prenups (before marriage) or postnups (during). All three names refer to the same legal instrument under the Family Law Act 1975.

What a BFA actually is

A written agreement between two people about how property and / or spousal maintenance will be dealt with if the relationship ends. Can be made:

• Before marriage (s90B).
• During marriage (s90C).
• After divorce (s90D).
• Equivalent provisions exist for de facto relationships under Part VIIIAB.

If properly executed, a BFA ousts the court's jurisdiction to make property orders. The agreement decides, not a judge. That's the point. That's also why the court is suspicious of them and the procedural requirements are strict.

What it can cover

• How property (current and future) is divided.
• How financial resources are treated.
• Spousal maintenance.
• Specific assets quarantined as one party's separate property.
• How debts are handled.

What it cannot cover:

• Child support (separate statutory regime).
• Parenting arrangements (a BFA can't bind future arrangements for kids).
• Anything that creates an unconscionable outcome.

Procedural requirements (the bit people skip)

For a BFA to be binding, all of these must be true:

• It's in writing and signed by both parties.
• Each party has received independent legal advice from a different lawyer about the effect of the agreement on their rights, and the advantages and disadvantages.
• Each lawyer has signed a certificate confirming the advice was given.
• The original is held by one party, a copy by the other.
• The agreement hasn't been terminated or set aside.

Skip any of these and you don't have a BFA. You have a piece of paper a judge can ignore. Most challenged BFAs that fall over fall over here. A lawyer who rushes the advice, doesn't issue the certificate properly, or where the timing of execution doesn't allow genuine consideration, all hollow out the agreement.

What gets a BFA struck down

Even properly executed BFAs can be set aside under s90K. The grounds include:

• Fraud (including failure to disclose material assets at the time of signing).
• The agreement is void, voidable, or unenforceable for general contract reasons.
• Unconscionable conduct.
• A material change in circumstances relating to the care of a child means the BFA would cause hardship.
• The agreement is impractical to carry out due to changed circumstances.

In practice, the most common reasons BFAs get challenged: incomplete disclosure (assets weren't on the schedule), duress (signed two weeks before the wedding with all the pressure that implies), inadequate independent advice (the lawyer didn't really go through it), and material change relating to children (a kid arrived and the agreement made no provision).

When a BFA is worth doing

Genuinely consider one if:

• You're entering the marriage with significantly more assets than your partner. Not "I have a unit and they don't", more "I have $1m+ disparity".
• You have a family business or interest in a family trust where other family members would be exposed if you separated.
• You're remarrying with adult children from a previous relationship and want to protect their inheritance.
• One of you has substantial pre-existing wealth from inheritance or otherwise.
• You're at risk of receiving a substantial inheritance during the marriage and want to quarantine it.
• One party has come out of a previous expensive divorce (this is the most common honest reason).

When a BFA isn't worth doing

• Modest combined assets (under $500k or so). The legal cost eats the protective value.
• Long-established marriage with intermingled finances. The BFA you'd want now is unlikely to be straightforward to draft.
• Where one party is reluctant. Reluctant signatures don't survive challenge.
• As a "cooling-off" tool during marriage problems. Postnups during a wobbly marriage often signal worse problems and rarely survive the challenge that follows.

The cost

• Properly drafted BFA, both parties separately advised: $5,000 to $12,000 between you.
• Complex BFA with business / trust structures: $15,000+.
• Cheap online BFA "templates": $200, sometimes less. Worth roughly that, often less, frequently nothing. Don't.

The cost isn't the legal drafting alone. It's the time both lawyers spend going through the disclosure, explaining the consequences, and signing certificates that will hold up to scrutiny.

The conversation itself

The BFA conversation kills relationships. Not because of the document, because of how it's raised. A few things that help:

• Raise it early. Months before the wedding, not weeks. Anything inside three months looks coercive.
• Frame it factually, not emotionally. "I want to protect both of us" works better than "I need to protect my assets from you".
• Be willing to negotiate the terms. A BFA that gives one side everything won't survive challenge anyway.
• Pay for both legal fees if you're the one who wants the BFA. It removes a major argument later.
• Don't make it a wedding-day ultimatum. That's the textbook duress fact pattern.

If raising it ends the relationship, the relationship had a problem the BFA didn't cause. That's worth knowing now rather than after a wedding.

What about postnups specifically

Postnuptial BFAs (signed during the marriage) carry the same weight as prenuptial ones if properly executed. Common situations:

• A spouse is about to receive a significant inheritance.
• A business is being started or restructured.
• Reconciliation after a separation, with terms.
• Recognition by both parties that the original financial arrangement no longer reflects reality.

Postnups in unstable marriages are statistically the ones that get challenged most. If both parties are genuinely on stable ground, the agreement holds up better.

What about de facto BFAs

Available under Part VIIIAB. Same procedural requirements. Particularly useful for couples who have lived together long enough to qualify as de facto (generally two years, with some exceptions) but haven't married. The risk people miss: a de facto BFA only covers de facto property regimes. If the couple subsequently marries, you may need a fresh BFA, because the marriage changes the legal basis. Get advice on this if it applies.

The honest picture

BFAs aren't bulletproof. They're well-built, properly fitted body armour. Most challenges fail. Some succeed. The agreements that succeed are the ones drafted carefully, signed without pressure, supported by full disclosure, and reviewed when life changes (kids, big asset moves, business sales).

The bloke I mentioned at the start, with the $7,500 BFA in the drawer? Both of them updated it after the second kid was born. Cost another $2,500. Cheap insurance, given what each of them had paid for their first divorces.

If you have something material to protect, and you have a willing partner, and you have time to do it properly, a BFA is a serious tool. If you have one of those three but not the others, save your money.

Disclose fully, advise properly, sign freely.