Binding Financial Agreements – Pitfalls of the “Pre-Nup”

Monday, February 19, 2018

As a family lawyer, people often ask me whether ‘pre-nuptial agreements’ or ‘binding financial agreements’ (as they are known in Australia) are worth the paper they are written on.

So, if you have entered into a binding financial agreement (“BFA“) and feel that the terms of it are unfair, pay attention.

What Is a Binding Financial Agreement?

A BFA is a written, signed and dated agreement made between two parties to a relationship under the Family Law Act 1975 (“the Act“). A BFA may be made at any stage of a relationship including:

  • prior to the commencement of a relationship;
  • during a relationship; and
  • after the breakdown of a relationship.

To be binding, a BFA must be signed by all parties. Further, both parties must have sought and obtained independent legal advice as to the effect of the agreement and the advantages and disadvantages of entering into it.

This article focuses on a recent High Court case which set aside a BFA which was entered into prior to marriage.

The Decision of Thorne v Kennedy

The case of Thorne v Kennedy [2017] HCA 49 involved a ‘prenuptial’ BFA along with a further BFA ‘made during a marriage’.

In that case, the parties had plans to marry. The date of the wedding had been scheduled and a mere 11 days prior to the wedding the husband presented the wife with a BFA which he requested she sign before the wedding.

Both parties obtained independent legal advice as to the BFA. The wife received advice that the amount she would receive pursuant to the BFA was ‘piteously small’. She was advised not sign the agreement. Despite this, the wife signed the agreement and the wedding went ahead.

The parties separated some four years later. The wife applied for and was granted leave of the Federal Circuit Court of Australia seeking orders that the BFA be overturned. She claimed that she was subjected to duress and that she was pressured into signing the BFA.

The wife was successful in her application and the BFA was set aside.

The husband appealed. On appeal the Full Court of the Family Court accepted the husband’s appeal, and ordered the enforcement of the terms of the BFA.

The wife filed a further appeal to the High Court of Australia (“HCA“). The HCA set aside the BFA and enabled the wife to seek a property adjustment under the Act.

The following were notable factors which played an important part in the decision made by the HCA:

  • Whether there was any negotiation offered by the person in the greater position of power. In this case, the husband dictated the terms of the agreement and there was no offer of negotiation as to these terms.
  • The emotional circumstances in which the agreement was entered, including any explicit or implicit threat. In this case, the husband was threatening not to follow through with the wedding. Essentially, the wife’s choice was to either accept the terms of the agreement or call off the wedding.
  • Whether there was time for careful reflection of the proposed agreement. In this case, the wife was given minimal time to properly consider the BFA since the husband had insisted it be signed prior to the scheduled wedding.
  • The nature of the parties’ relationship and whether one party was more vulnerable than the other. In this case, the wife had moved to Australia from a different country. She was a woman of modest means and as such was dependent upon the husband to provide for her financially. The husband was in a substantially greater position of wealth.
  • The independent advice that was received and whether there was time to reflect on that advice.  In this case, the court accepted that the wife had received appropriate advice but the amount of time she had to reflect upon the advice was inadequate.

The HCA acknowledged that BFA’s are generally created to favour one party. However, it was noted that if the imbalance is so significant that the agreement was totally skewed in one party’s favour, then that inequity alone can indicate undue influence or unconscionable conduct and give rise for BFA to be set aside.

Setting Aside a BFA

What the decision in Thorne v Kennedy has made abundantly clear to family lawyers, is two-fold.

Firstly, preparation of a BFA should be undertaken with a great deal of care and consideration for the circumstances surrounding the matter and particular attention should be paid to whether the agreement wholly or substantially disadvantages one party.

Secondly, there are numerous avenues available to seek that a BFA be overturned and even the provision of thorough independent legal advice may not necessarily protect parties from having a BFA set aside.

How We Can Help

If you or someone you know seeks advice with respect to setting aside a BFA, we suggest you contact Quinn and Scattini Lawyers for an initial consultation. We have a team of Family Law experts who are just a call away from helping you navigate the family law system.

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