Talking about money before a wedding or moving in together is rarely romantic. Yet many couples want clarity about what happens to their property if the relationship ends. In Australia, one way to set this out is a financial agreement. These are often called prenups or binding financial agreements.

Financial agreements are made under the Family Law Act 1975. They can be useful, but they are strict documents with formal rules. If those rules are not followed, the agreement may not hold up. This article explains the basics in plain terms.

What a financial agreement is

The Federal Circuit and Family Court of Australia describes a financial agreement as a contract between two or more parties. For married couples it is made under Part VIIIA of the Family Law Act. For de facto couples it is made under Division 4 of Part VIIIAB, except in Western Australia, where de facto couples are covered by the Family Court Act 1997 (WA). The Queensland Government notes that married and de facto couples, including same sex couples, can make these agreements.

What it can cover

An agreement can cover all aspects of a couple’s financial relationship or only some issues. The Queensland Government lists the division of assets and money as one common subject. Agreements can also deal with financial support, known as maintenance, during the marriage, after a divorce or both. When an agreement is binding, it can remove the court’s power to decide those financial or property matters.

Spousal maintenance is one area where couples often want certainty. An agreement can deal with maintenance on its own, without covering the rest of a couple’s finances. For background on how support is assessed without an agreement, see our article on calculating spousal support.

When you can make one

A financial agreement does not have to be signed before a wedding. For married couples, section 90B of the Act allows an agreement before the marriage. Section 90C covers agreements during the marriage and section 90D covers agreements after it ends. Sections 90UB, 90UC and 90UD do the same for de facto couples before, during and after the relationship.

Agreements made after separation often sit beside other hard decisions. One of the most common is what to do with the family home. Our article on when one spouse refuses to leave the matrimonial home looks at that problem.

What makes an agreement binding

Section 90G of the Family Law Act sets out when a financial agreement between spouses is binding. Each requirement must be met. Section 90UJ contains similar rules for de facto couples. The main requirements for spouses are listed below.

• The agreement is signed by all parties.
• Before signing, each spouse received independent legal advice from a legal practitioner about the effect of the agreement on their rights.
• That advice covered the advantages and disadvantages to that spouse of making the agreement.
• Each spouse received a signed statement from the legal practitioner confirming the advice was given.
• A copy of each statement was given to the other spouse or to their lawyer.
• The agreement has not been terminated or set aside by a court.

Why the legal advice step matters

Independent legal advice is not a formality. The Federal Circuit and Family Court of Australia says each party must receive this advice from an Australian legal practitioner before entering the agreement. Each person needs advice about their own position, given before they sign. The signed statements give a record that the advice took place.

There is a limited fallback in section 90G(1A). If the advice or statement steps were missed, a court can still declare the agreement binding. It must be satisfied that it would be unjust and inequitable for the agreement not to be binding. Relying on this is risky, so it is far better to get the steps right from the start.

When a court can set an agreement aside

Even a properly signed agreement can be challenged. Section 90K of the Act lists the grounds on which a court may set aside a financial agreement between spouses. Section 90UM covers de facto agreements. The grounds are narrow, but they are worth knowing before you sign.

One ground is fraud, which includes failing to disclose a material matter. Another is that the agreement is void, voidable or unenforceable, or that a party acted unconscionably in making it. A court may also act where circumstances have changed so the agreement cannot practicably be carried out. Agreements made to defeat creditors or a de facto partner’s claims can also be set aside.

Children can affect an agreement too. A court can set aside an agreement after a significant change in circumstances relating to the care, welfare or development of a child. The child, or a party caring for the child, must be likely to suffer hardship if the agreement stands. Parenting matters have their own rules, and our article on fighting for child custody covers some of them.

Superannuation is another area to watch. An agreement can be set aside if it covers a super interest that cannot be split, or one with a payment flag unlikely to be lifted. Super rules are technical, so ask your lawyer how they apply. The Queensland Government notes that couples can also agree to change or cancel an agreement.

Practical points before you sign

Give yourself time. Rushing an agreement leaves less time to read it, ask questions and get proper advice. Be open about your finances, since failing to disclose a material matter is a ground for setting an agreement aside. Review the agreement with a lawyer if your circumstances change in a big way.

Keep the signed agreement and the lawyers’ statements somewhere safe. If you are separating, a financial agreement is only one part of the process. Our article on applying for a divorce covers other points to remember.

Frequently asked questions

Is a prenup legally binding in Australia?

A financial agreement made before marriage can be binding if it meets the requirements of the Family Law Act. These include signatures from all parties and independent legal advice for each spouse. Each spouse must also receive a signed statement from their lawyer. A court can still set it aside on limited grounds.

Can de facto couples make a financial agreement?

Yes, they can. De facto couples can make agreements before, during or after their relationship under Part VIIIAB of the Family Law Act. Similar requirements apply to make the agreement binding. Western Australian de facto couples are covered by the Family Court Act 1997 (WA) instead, so check with a lawyer where you live.

Can a financial agreement cover only maintenance?

Yes, it can. The Federal Circuit and Family Court of Australia says an agreement can cover all of a couple’s financial relationship or only some issues. Spousal or de facto maintenance is given as one example. A lawyer can explain what is best left in or out.

What if we only have an informal agreement?

The Queensland Government says informal agreements are not recommended because courts cannot enforce them. Courts may still take them into account. An informal arrangement can be made binding through consent orders or a financial agreement.

This article is general information about Australian family law and is not legal advice. Family law rules and court processes change, and some arrangements differ between states. Speak with a qualified family lawyer before signing or challenging a financial agreement.