Postnuptial Agreement Australia: A Comprehensive Guide
What is a Postnuptial Agreement in Australia?
In Australian family law, what many know as a “postnuptial agreement” is formally recognised as a Binding Financial Agreement (BFA) under the Family Law Act 1975 (Cth). For married couples, Section 90C governs these agreements, which allow spouses to determine how financial matters and property would be handled should their marriage end. For de facto couples, similar provisions exist under Sections 90UB, 90UC, and 90UD.
These agreements serve as a private contractual arrangement between couples, effectively “contracting out” of the Court’s jurisdiction to determine property settlements. They provide certainty and can significantly reduce emotional and financial costs should a relationship breakdown occur.
Legal Requirements for a Binding Financial Agreement
For a BFA to be legally enforceable in Australia, it must satisfy several stringent requirements:
- Written Agreement: The agreement must be documented in writing, clearly stating all terms agreed upon by both parties.
- Independent Legal Advice: Each party must receive independent legal advice about the advantages and disadvantages of entering the agreement, and how it affects their rights under the Family Law Act.
- Lawyer’s Certification: The legal practitioners providing advice must furnish a signed statement confirming that advice was given. These certificates must be attached to the agreement.
- Formal Execution: Both parties must sign the agreement, ideally in the presence of their respective lawyers.
- Absence of Duress, Fraud, or Unconscionable Conduct: Following the landmark case Thorne v Kennedy [2017] HCA 49, courts scrutinise whether agreements were made under pressure or unfair circumstances.
- Specific and Clear Provisions: The agreement should contain specific rather than vague provisions about asset division and financial arrangements.
- Disclosure of Financial Information: Full and frank disclosure of all relevant financial information is essential for the agreement’s validity.
Failing to meet any of these requirements may render the BFA unenforceable, meaning it cannot be relied upon during property division proceedings.
What a Binding Financial Agreement Can Cover
A comprehensive BFA can address numerous financial matters that might arise upon separation:
Property Division
The agreement can specify how assets should be divided, including:
- Real estate and family homes
- Investment properties
- Bank accounts and cash reserves
- Vehicles and personal property
- Businesses and business interests
- Inheritances received during the relationship
- Personal belongings and collectibles
Superannuation
BFAs can include provisions for splitting superannuation, which is particularly important given the complexity of superannuation law in Australia. The agreement must comply with the Superannuation Industry (Supervision) Act 1993 and related regulations.
Spousal Maintenance
The agreement can define whether one spouse will provide financial support to the other after separation, including:
- The amount of maintenance payments
- The duration of such payments
- Circumstances that might trigger changes to the arrangement
- Conditions for terminating maintenance obligations
Financial Resources and Debts
BFAs can address the division of:
- Mortgages and home loans
- Personal loans and credit card debts
- Investment loans
- Tax liabilities
- Joint and several debts
- Future inheritance expectations
Financial Matters Related to Children
While child support and custody arrangements cannot be determined in a BFA, the agreement can address financial provisions for children’s:
- Education expenses
- Medical costs
- Extracurricular activities
- Special needs requirements
What Cannot Be Included in a Binding Financial Agreement
Despite their flexibility, BFAs have clear limitations:
Child Support and Parenting Arrangements
The Family Law Act specifically prohibits BFAs from addressing:
- Child custody and living arrangements
- Child support obligations
- Parenting time schedules
- Decision-making authority regarding children
These matters must be determined based on the best interests of the children at the time of separation, usually through Parenting Plans or Parenting Orders.
Unjust or Impractical Provisions
Courts may set aside agreements containing terms that are:
- Manifestly unfair to one party
- Impossible to implement
- Against public policy
- Designed to defeat creditors or tax obligations
When Can a Court Set Aside a Binding Financial Agreement?
The Family Court retains the power to set aside BFAs in several circumstances, as outlined in Section 90K of the Family Law Act:
Fraud and Non-Disclosure
If one party deliberately conceals assets, misrepresents their financial position, or provides false information, the court may invalidate the agreement.
Duress, Undue Influence, or Unconscionable Conduct
The Thorne v Kennedy case dramatically changed how courts assess these factors. In this landmark 2017 High Court decision, a wealthy property developer presented his fiancée with a prenuptial agreement just days before their wedding, telling her the wedding would not proceed without signing. Despite receiving legal advice not to sign, she felt she had no choice. The High Court found this constituted both undue influence and unconscionable conduct, setting aside the agreement.
This case established that:
- The timing of an agreement matters (presenting agreements shortly before significant events creates pressure)
- Power imbalances are relevant to assessing undue influence
- Independent legal advice does not automatically cure problems with how an agreement was made
Change in Care of Children
If there has been a material change relating to the care, welfare, and development of a child since making the agreement, and enforcing the BFA would cause serious injustice to the primary caregiver, the court may set it aside.
Impracticality
If circumstances have changed so significantly that the agreement has become impossible to implement, the court may intervene.
Unconscionable Conduct
If one party exploited a significant power imbalance, vulnerability, or disadvantage of the other, the agreement may be invalidated.
Tax Implications of Binding Financial Agreements
An often-overlooked aspect of BFAs is their tax implications:
Capital Gains Tax (CGT)
Under Australian tax law, transfers of assets between spouses pursuant to a BFA may qualify for CGT rollover relief, deferring tax liabilities until the eventual disposal of the asset.
Stamp Duty
In most Australian states and territories, transfers of property between spouses as part of a BFA may be exempt from stamp duty, though specific requirements vary by jurisdiction.
Income Tax
Income-producing assets transferred under a BFA will have income tax implications for the receiving spouse, who becomes liable for tax on income generated by those assets.
Tax Planning
A well-crafted BFA can incorporate strategic tax planning to minimize overall tax burdens during asset transfers. Consultation with both family lawyers and tax specialists is advisable.
Cross-Jurisdictional Issues
For couples with international connections, additional complexities arise:
Foreign Assets
BFAs can address foreign assets, but enforcement may be complicated by international law. Separate agreements in relevant jurisdictions may be necessary.
International Recognition
Australian BFAs may not be automatically recognized in foreign jurisdictions. Couples with international ties should seek specialized legal advice.
Dual Citizens
Dual citizens should consider how both countries’ laws might affect their financial agreement and potentially seek legal advice in both jurisdictions.
Foreign Income
Treatment of offshore income, trusts, and business interests requires careful consideration in BFAs involving multiple countries.
Pros and Cons of Binding Financial Agreements
When considering a BFA, couples should carefully weigh these advantages and disadvantages:
Advantages
- Financial Certainty: Provides clear understanding of how assets would be divided
- Protection of Individual Assets: Safeguards pre-marital assets, inheritances, or business interests
- Customised Solutions: Can be tailored to unique financial circumstances and priorities
- Reduced Conflict: May minimise disputes during separation by pre-establishing terms
- Privacy: Keeps financial matters private unlike court proceedings
- Cost Savings: Potentially reduces legal costs compared to contested property settlements
- Estate Planning Integration: Can work alongside wills and estate plans for comprehensive protection
Disadvantages
- Relationship Impact: Negotiating a BFA may create tension or mistrust
- Power Imbalances: Risk of unfair agreements if significant power disparity exists
- Changing Circumstances: May become inappropriate as financial situations evolve
- Legal Costs: Requires investment in proper legal advice and drafting
- Complexity: Navigating all legal requirements can be challenging
- Uncertainty of Enforcement: Despite best efforts, courts may still set aside agreements
- Regular Review Needed: Requires ongoing attention and potential updates
When NOT to Use a Binding Financial Agreement
BFAs aren’t suitable for everyone. Consider alternatives when:
- There is significant pressure from one party to sign quickly
- One party cannot afford independent legal advice
- The relationship involves domestic violence or coercive control
- There is a severe imbalance in financial resources or knowledge
- Children’s circumstances are likely to change significantly
- The cost of properly preparing the agreement outweighs the potential benefits
- The parties cannot reach reasonable agreement on terms
Case Examples Beyond Thorne v Kennedy
Several other significant cases have shaped how BFAs operate in Australia:
Hoult v Hoult [2013] FamCAFC 109
This case highlighted the importance of strict compliance with technical requirements. The Full Court found that a lawyer’s certificate did not meet the Act’s requirements, rendering the agreement unenforceable despite both parties having received legal advice.
Sullivan v Sullivan [2011] FamCA 752
Demonstrated how non-disclosure of significant assets can invalidate an agreement. The husband’s failure to disclose substantial property holdings led to the agreement being set aside.
Fewster v Drake [2016] FamCAFC 214
Addressed the timing of legal advice, confirming that advice must be given before signing the agreement. Providing retroactive advice does not satisfy the Act’s requirements.
Practical Implementation and Timing
When to Create a BFA
While BFAs can be made at any time during a marriage or de facto relationship, they are most commonly created:
- Shortly after marriage (replacing or confirming a prenuptial agreement)
- Following a significant financial change (inheritance, business success)
- When contemplating separation but wishing to avoid court proceedings
- Upon reconciliation after a separation
Regular Reviews
Financial agreements should be reviewed:
- Every 3-5 years
- After major life events (birth of children, career changes)
- Following significant changes in financial circumstances
- When substantial assets are acquired or disposed of
Integration with Estate Planning
BFAs should be coordinated with:
- Wills and testamentary trusts
- Powers of attorney
- Superannuation death benefit nominations
- Life insurance policies
Costs and Timeframes
Typical Costs
The cost of preparing a comprehensive BFA varies significantly based on complexity, but typical ranges in Australia are:
- Simple agreements: $3,000-$5,000 (combined for both parties)
- Moderate complexity: $5,000-$10,000
- Complex arrangements (businesses, trusts, international assets): $10,000-$25,000+
Timeframes
Properly drafted BFAs take time:
- Initial consultation and information gathering: 1-2 weeks
- Drafting and negotiation: 2-6 weeks
- Review and final execution: 1-2 weeks
Rushing the process often creates vulnerabilities in the agreement.
Next Steps for Making a Binding Financial Agreement
If you’re considering a BFA, follow these steps:
- Consult a Family Lawyer: Seek guidance from a lawyer at Mediations Australia in preparing your BFA.
- Financial Disclosure: Prepare comprehensive lists of all assets, liabilities, financial resources, and income sources.
- Open Communication: Discuss intentions clearly with your spouse or partner before engaging lawyers.
- Consider Future Scenarios: Think about how different life events might affect your financial situation.
- Obtain Independent Legal Advice: Each party must have their own lawyer who specializes in family law.
- Draft and Review: Work with your lawyer to create a comprehensive agreement that addresses all relevant financial matters.
- Regular Review: Schedule periodic reviews of your agreement to ensure it remains appropriate.
- Proper Storage: Keep signed copies in a secure location and provide copies to your lawyer.
Conclusion
Binding Financial Agreements serve as valuable tools for Australian couples seeking clarity and control over their financial futures. When properly executed, they provide certainty and can significantly reduce emotional and financial costs should a relationship end.
The stringent requirements for creating enforceable BFAs reflect their significant legal implications. Following the Thorne v Kennedy decision, courts more carefully scrutinise these agreements, particularly regarding how they were negotiated and executed.
For a BFA to withstand potential challenges, it must be prepared with meticulous attention to legal requirements, involve full financial disclosure, and be entered into without pressure or undue influence. Regular reviews and updates ensure the agreement remains relevant as circumstances change.
If you’re contemplating a BFA, consulting an experienced family lawyer at Mediations Australia is essential. We can provide the expertise needed to navigate this complex area of law, helping create an agreement that protects your interests while meeting all legal requirements for enforceability.
