Binding Financial Agreements : Koffels Solicitors and Barristers

Financial certainty before, during, or after a significant relationship

A Binding Financial Agreement is one of the most powerful planning tools available in Australian family law — and one of the most frequently misunderstood. When properly drafted and executed, a BFA removes the court’s jurisdiction to make property or maintenance orders in relation to the matters it covers. When poorly drafted or executed under the wrong conditions, it is worth nothing.

This hub page covers what BFAs are, when they are appropriate, the strict legal requirements for enforceability, the circumstances in which courts set them aside, and the specific considerations for business owners, executives, and individuals with significant or inherited wealth.

Part of the Koffels complex family law guide. For the broader property settlement framework, see property settlement and business interests.

What is a Binding Financial Agreement?

A Binding Financial Agreement is a written contract made under the Family Law Act 1975 (Cth) between two people in a relationship — or who have been in a relationship — that deals with how financial matters will be resolved if the relationship ends. The agreement can deal with the division of property, the exclusion of certain assets from any future settlement, and whether either party will be entitled to spousal maintenance.

BFAs can be made at three points in a relationship:

Before the relationship is formalised, a pre-nuptial agreement or pre-cohabitation agreement is made before marriage or before a de facto relationship commences or is established.
During the relationship, while a marriage or de facto relationship is ongoing.
After the relationship ends, as part of a separation settlement, as an alternative to consent orders.

The effect of a valid BFA is significant. It operates to oust the court’s jurisdiction to make orders under section 79 (for married couples) or section 90SM (for de facto couples) in relation to the matters it covers. Courts cannot override a valid BFA, subject to the grounds on which an agreement can be set aside.

When is a BFA appropriate?

BFAs are not appropriate for every relationship. They involve legal costs, they require a difficult conversation, and a poorly timed or inadequately drafted agreement creates more risk than it resolves. But in a defined set of circumstances, they are not just appropriate — they are essential planning.

Business owners and founders

For a business owner entering a significant relationship, the risk that a future separation could disrupt the business — requiring a valuation, exposing the structure to scrutiny, or compelling a partial sale to fund a settlement — is a genuine commercial risk that a BFA can address directly. A well-drafted BFA can establish in advance how the business interest will be treated, ring-fence pre-relationship equity, and provide for a mechanism to deal with any increase in value that reflects the contributions of both parties during the relationship.

Where a business has co-founders or co-shareholders, those shareholders have an independent interest in ensuring that one founder’s relationship breakdown does not result in their equity becoming entangled in family law proceedings. A BFA, coordinated with appropriate provisions in the shareholder agreement, is the most reliable mechanism for managing that risk.

Individuals with inherited or pre-relationship wealth

Where a party enters a relationship with substantial pre-existing assets — a family inheritance, a property portfolio, or investments built up before the relationship — a BFA can protect those assets from being included in the pool available for division, or limit the degree to which they are shared, in a way that reflects both parties’ understanding of the relationship.

Without a BFA, pre-relationship assets are not automatically protected. Courts will take them into account as an initial contribution, but that contribution is assessed against subsequent contributions made during the relationship, and can be significantly diluted in long relationships or where the other party makes substantial non-financial contributions.

Second relationships with children from prior relationships

Where a party enters a second relationship with children from a prior relationship and testamentary intentions to provide for those children, a BFA has an important role alongside estate planning. It can ensure that the assets intended for children from the first relationship are not available to a second partner in the event of separation, and can be structured to complement a will and any testamentary trust arrangements.

Executives and high-earning professionals

For senior executives, partners in professional firms, or high-earning professionals whose income or equity-based compensation is likely to grow substantially during a relationship, a BFA can establish a framework for how that growth is shared — or not shared — in the event of separation. This is particularly relevant where remuneration includes unvested equity, carried interest, or deferred bonuses that may not yet be realisable but represent significant future value.

De facto relationships

The de facto provisions of the Family Law Act extend the same property and maintenance rights to qualifying de facto couples as to married couples, and a BFA is equally available and equally important in the de facto context. The particular risk in a de facto relationship is that parties may not appreciate that they are in a legally recognised relationship, or the financial exposure that arises when the relationship ends. A BFA addresses that risk directly.

Further reading: How de facto relationships arise — and the legal implications →

The requirements for a valid BFA

The Family Law Act sets out strict formal requirements for a BFA to be binding. These requirements are not procedural formalities — they are substantive conditions, and failure to satisfy any of them will render the agreement unenforceable.

Independent legal advice

Before signing the agreement, each party must receive independent legal advice from a separate solicitor. The advice must cover the effect of the agreement on that party’s rights, and the advantages and disadvantages of entering into the agreement at the time it is made. A solicitor cannot advise both parties — independent advice means genuinely separate advice from different practitioners.

Each solicitor must provide a signed statement confirming that the advice was given. That statement must be attached to the agreement or accompany it. Without it, the agreement is not binding.

Writing and execution

The agreement must be in writing and signed by both parties. There is no prescribed form, but the agreement must be sufficiently clear in its terms to be enforceable. Vague or ambiguous provisions create exactly the kind of uncertainty a BFA is intended to avoid.

No vitiating circumstances

The agreement must not have been entered into under duress, undue influence, or as a result of fraudulent conduct or material non-disclosure. Each party must have had a genuine opportunity to consider the agreement and seek advice before signing.

Grounds on which BFAs are set aside

The history of BFA litigation in Australia is instructive. A significant number of agreements that parties believed were binding have been set aside by courts, often at substantial cost and after lengthy proceedings. Understanding the grounds for setting aside is essential to understanding what makes a BFA genuinely robust.

Defects in the independent legal advice

This is the most common ground on which BFAs are challenged. The requirement is not merely that advice was given — it is that the advice was genuine, informed, and independent. Advice given in a brief meeting immediately before signing, without the adviser having had adequate time to review the agreement and understand the client’s circumstances, has been found to be insufficient. Advice given by a solicitor with a conflict of interest, or advice that was clearly inadequate for the complexity of the agreement, has similarly been found to fall short of the statutory requirement.

Fraud and non-disclosure

A party who procured an agreement by fraudulent means, or who failed to disclose material financial information before the agreement was signed, cannot rely on it. The obligation of disclosure in the BFA context mirrors the broader disclosure obligations in family law proceedings — it is comprehensive and ongoing.

Undue influence and unconscionable conduct

Where one party was in a position of vulnerability or dependence at the time of signing — whether through financial dependence, emotional pressure, or other circumstances — and the other party took advantage of that vulnerability, courts have set agreements aside on grounds of undue influence or unconscionable conduct.

An agreement presented shortly before a wedding, in which the other party has made significant non-refundable arrangements, has, in a number of cases, been found to involve a degree of situational pressure that undermined the voluntariness of the agreement. This does not mean pre-nuptial agreements cannot be enforced — many are — but the timing and circumstances of execution are scrutinised carefully.

Impracticability and supervening events

Courts can also set aside or vary a BFA where circumstances have changed so significantly since it was made that it would be impracticable to carry out the agreement, or where a material change in circumstances relating to the care of a child would cause hardship to a party or child if the agreement were enforced.

A BFA is only as strong as the process by which it was made. The most carefully drafted agreement can be undone by a flawed execution — inadequate advice, time pressure, or incomplete disclosure. These are not technical defects. They are the substantive conditions on which enforceability depends.

What a well-drafted BFA covers

The specific content of a BFA depends on the circumstances of the parties, but in complex matters a well-drafted agreement will typically address the following.

Pre-relationship assets

Assets owned by either party before the relationship commenced — and the treatment of any appreciation in their value during the relationship. The agreement should be specific: identifying the assets by reference to valuations or schedules, and distinguishing between passive appreciation (which may or may not be shared) and appreciation driven by the efforts of one or both parties during the relationship.

Business interests

Where one or both parties hold interests in a private business, the agreement should address how those interests will be treated in the event of separation — whether they are excluded entirely, shared to a defined degree, or dealt with by a specific mechanism such as a buy-out at an agreed valuation methodology. The agreement should also address how increases in business value during the relationship will be characterised.

Inherited and expected assets

Inheritances received during a relationship are a contribution that courts will consider in a property settlement. A BFA can provide that inheritances, gifts from family members, or assets held in a family trust remain outside the relationship pool, which reflects the reasonable expectations of most parties in this situation.

Maintenance

The agreement can provide that neither party will be entitled to maintenance from the other, or can specify the terms on which maintenance will be payable. This is particularly relevant in relationships where there is a significant income disparity or where one party is likely to reduce their workforce participation during the relationship.

Review provisions

A BFA made at the beginning of a long relationship may become inadequate as circumstances change. Including a provision for periodic review — or specifying the circumstances in which the agreement should be renegotiated — is advisable in any agreement intended to operate over a significant period.

Where parties have already separated and are resolving their financial affairs, a BFA is one of two mechanisms available to formalise the agreement. The alternative is consent orders — orders made by the court by consent on the terms agreed by the parties.

The choice between a BFA and consent orders involves a genuine trade-off. Consent orders are approved by the court and provide a higher degree of certainty — once made, they can only be varied or set aside in limited circumstances. BFAs avoid the court entirely and are private, but they are vulnerable to the grounds for setting aside described above.

For parties who want finality and are confident in the terms of their agreement, consent orders are often the more secure mechanism. BFAs at the post-separation stage are most appropriate where there are reasons to avoid court involvement — including confidentiality concerns — or where the specific terms of the agreement would not be approved by the court as just and equitable.

The process of obtaining a BFA

A BFA is not a document that can be downloaded and signed. It requires careful drafting tailored to the specific circumstances of the parties, disclosure of financial information by both parties, independent legal advice for each party, and a considered execution process.

In complex matters — particularly those involving business interests, trust structures, or significant pre-relationship wealth — the process of preparing a BFA typically involves a period of financial disclosure and analysis before drafting begins. Understanding the assets to be addressed, their current values, and the structure in which they are held is a prerequisite to drafting agreement terms that are specific enough to be enforceable and workable.

The time required from instruction to execution depends on the complexity of the matter and the degree to which both parties and their advisers can cooperate in the process. Simple agreements between parties with straightforward finances can be completed relatively quickly. Complex agreements involving business interests, overseas assets, and trust structures require more time and more detailed preparation.

Speak with us in confidence

If you are considering a Binding Financial Agreement, or if you have an existing agreement whose enforceability you wish to understand, we invite you to contact us for a confidential discussion. There is no obligation.

This page is intended as a general reference only and does not constitute legal advice. BFA requirements and enforceability are highly fact-specific. You should seek advice from a qualified family law solicitor in relation to your particular circumstances. Koffels Solicitors and Barristers, Level 23 Angel Place, 123 Pitt Street, Sydney NSW 2000.