What is a binding financial agreement?

Fact Checked
Updated 10/07/2023
What is a binding financial agreement?

Time to read : 3 Minutes

What Is a Binding Financial Agreement

A binding financial agreement is also known as a prenuptial agreement.

It’s a legal document that sets out how some or all of a couple’s assets will be divided, if their relationship ends. It can also include directions for spousal maintenance.

It's best to create an agreement before entering a de facto relationship or getting married.

That’s because, when you’re in love and imagining a long future together, you’re more likely to design an agreement that is fair to both of you. 

Breakups, unfortunately, can create a lot of bitterness and anger. Trying to work out a fair way to divide assets at that painful stage can be tricky, And that means you might waste lots of time and money as you negotiate (and argue) with lawyers.

Protect your wealth from relationship breakdowns

Because you work hard for your money, protecting your assets matters.

The Family Law Act 1975 (Cth) allows de facto couples and married couples to enter into legally binding financial agreements.

Think about a binding financial agreement if:

  • you enter the relationship with more money, property or assets than your partner

  • you may, in the future, be entitled to an inheritance or large, valuable gift

  • you operate – and want to preserve – a family business or investment

  • you want to avoid potential court battles by ensuring the terms of any property division are agreed now

  • you are in a new relationship but already have children who need to be protected financially.

Is a binding financial agreement really binding?

Binding financial agreements need to be carefully drafted by an experienced lawyer.

To be binding, certain requirements must be met. Both parties should get independent legal advice and have a solicitor draft and sign the document.

Binding financial agreements should be reviewed about every two years or after any significant event, such as the birth of a child, or receiving an inheritance.

What does a binding financial agreement typically cover?

It specifies how the parties involved agree to divide the asset pool if the relationship ends. Binding financial agreements deal with property and financial resources, as well as maintenance, and typically include:

  • financial settlement (property settlement, including superannuation entitlements)

  • financial support (maintenance) of one spouse by the other

  • agreed arrangements for any children

  • protection of existing assets or likely inheritances

  • inheritance for children of previous relationships

  • preservation of family farms or businesses for future generations

  • the contribution of a higher income earner within the relationship.

Many factors are taken into account, including:

  • occupations and future capacity to earn an income

  • superannuation entitlements

  • current value of assets, including chattels, furniture, shares, valuables and vehicles

  • current market value of property

  • each person's liabilities, including any loans, mortgages or debts

  • any other family law financial agreement that may apply

  • when you started living together as a couple

  • when you started your relationship

  • whether either member of the couple has been married before

  • number and age of any children.

Benefits of a binding financial agreement

  • think of it as a kind of safety net that protects both parties

  • if one partner is significantly wealthier than the other partner, it can help confirm that the other party is not just in it for the money

  • it can help protect inheritance from a potential future divorce.  

Disadvantages of a binding financial agreement

  • finances can be tough to discuss, and, in the loved-up stage of a relationship. talking about protecting financial assets can seem clinical

  • without quality legal advice, the agreement runs the risk of being unfair to one party.

The bottom line

If they are not done properly, binding financial agreements can be set aside (thrown out) under section 90K and section 90UM of the Family Law Act in various circumstances.

To help protect your finances properly, use an experienced legal specialist.

Sure, it might seem negative to talk about the potential for your relationship failing when you are a happy couple, but things can go wrong.

Knowing you have done everything possible to give your finances the best legal protection is definitely positive.

Go deeper:

Divorce and your finances: how to manage the split

What is a life nominated beneficiary?

Financial disclaimer

The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.