Antoinette Sagaria and her wife have been married for five years, have a daughter and are very much in love, but they are getting a binding financial agreement (BFA) — Australia’s equivalent of a prenup.
To many, getting a BFA after you are already married may seem odd, but Ms Sagaria has seen how bad things can get when relationships break down.
She is the director of property at mortgage brokerage Entourage and, as well as advising homebuyers on BFAs, she is often appointed by court order when a partnership ends and couples have to sell property.
It was witnessing how “agonising and expensive” separation could be without a BFA that “massively contributed” to her and her wife’s decision to get one.
“Seeing how hard those conversations were initially made us realise there is no way you could have these conversations when you don’t love each other and it not become a disaster,” she said.
“Everyone knows someone who has been through a messy divorce.”
She and her partner want safety and security, and to have the discussion while in love, and wanting the best for each other.
Ms Sagaria is not alone. Several law firms told the ABC requests for BFAs had increased substantially.
One of the country’s largest family law firms reports requests for BFAs jumped 79 per cent in a year, while multiple others reported a doubling of requests since the pandemic.
Lawyers said drivers included the “bank of mum and dad” insisting upon them in return for helping their children purchase a home, increased demand from those entering second and third marriages, and an economic environment that pushing more people to protect their wealth and assets.
Divorce rates rise and the number of BFA enquiries follow
Divorce rates hit an all-time high in 2021, with 56,244 finalised, although the Bureau of Statistics attributed this partly to administrative changes that helped clear a pandemic backlog.
The number of couples applying for divorce also spiked during this period.
ASX-listed firm Australian Family Lawyers reported enquiries for BFAs rose from 153 in the first half of 2022 to 274 in the same period of 2023 across its 22 national offices. The firm’s head of family law in Victoria, Bill Kordos, said demand had continued to rise since.
There is no register of BFAs, so official statistics are hard to come by, but Mr Kordos said the firm’s lawyers were writing BFAs daily.
“It’s really coming from the bank of mum and dad because young people are entering into their homes with the biggest transition of generational wealth we have ever seen,” he said.
“It’s the wealthier parties that are providing the significant injection of funds who are saying, ‘We don’t mind giving it to you, but we don’t want it flushed down the drain if something goes south. We worked hard for that money, so there’s a conditional string attached to the gifting.’
“It is a mood killer, but I think romance and relationship psychology isn’t what it used to be.”
Mr Kordos said the cost of living and exclusionary house prices meant anyone with wealth was increasingly concerned about holding onto it.
The bank of mum and dad is becoming an increasingly powerful force within the market as well, with a Productivity Commission report estimating it to be between the fifth- and ninth-largest home mortgage lender by book value.
Young Australians also appear to increasingly feel they need help, with 2021 research reported by the Australian Housing and Urban Research Institute (AHURI) showing 40 per cent of early-career adults (aged 25-34) surveyed in Sydney and Perth expected family assistance to buy a house.
Mr Kordos’s experience concurs with the data.
“With most of my cases, I believe most of the couples would never be able to get into the property market without the assistance of the bank of mum and dad,” he said.
Mr Kordos said that while in some rare cases a discussion about a BFA led to a split for his firm’s clients, he said most couples told him it had enhanced their relationship because everyone knew where they stood.
Most people still avoid tough conversations, experts say
The bank of mum and dad might be a driving force behind BFAs, but University of Newcastle youth sociologist Julia Cook said most people were still avoiding tough conversations about money.
Dr Cook recently completed a three-year study of 80 people who either received or lent money to a family member to buy a home.
Despite sums often being large, none of the 80 participants got a BFA, and most relied on verbal agreements.
Where any form of written agreement was in place, it was an email or a short document that both parties signed and then left in a drawer.
“I did kind of gently ask some of the parents, ‘Have you considered what might happen to this assistance you’re providing if your child was to break up with their partner?'” Dr Cook said.
“They would generally say, ‘Yes, I’ve thought about it and thought about asking them to sign something, but I just ultimately felt like I couldn’t bring that up because it would be questioning their relationship and it would be inappropriate.'”
She said the lenders and borrowers often viewed things differently, with one seeing the money as a gift, and the other as a loan.
“There are hints of things that could go wrong in quite a few of the situations,” she said.
The limitations of BFAs
Barry Nilsson family law principal Will Stidston estimated demand for BFAs had doubled since the pandemic, but clients sometimes had the incorrect assumption they were straightforward.
In reality, there are a lot of technicalities involved to ensure they are enforceable.
“They shouldn’t be cookie cutter,” he said.
He said clients should also revisit the document periodically or after large life events, such as the birth of a child, the purchase of a home the or sale of a business, to check it was still fair and to minimise the risk either partner might challenge it in the event of a split.
Mr Nilsson said BFAs usually cost a minimum of $10,000, but could be substantially more depending on the assets the parties held and the complexity of their situation.
Sydney-based firm Barkus Doolan Winning partner Melinda Winning said cultural awareness about BFAs was increasing, and they were increasingly viewed as an effective legal agreement.
She said in the 24 years since BFAs were first introduced, case law had developed to the point that lawyers were much clearer on the dos and don’ts of writing up an effective agreement.
Geoffrey Dickson KC is a barrister and chair of the Family Law Bar Association of Victoria.
As a barrister his involvement usually starts during a separation, although increasingly he is asked by solicitors to vet BFAs they are writing up.
He estimated a 20 per cent rise in such requests and said demand for BFAs could have jumped more significantly because he was usually only consulted on agreements involving the very wealthy.
Mr Dickson said for BFAs to remain effective, signatories had to live by the rules they set out, particularly when it came to how they acquired and held assets post-union.
For example, if a couple agreed the wealth they brought into a relationship would be protected in the event of a split, and then used one partner’s money to buy a home that was jointly owned, that could create an issue enforcing a BFA.
“They’re only as good as the way you live your life, unfortunately,” Mr Dickson said.
The most common mistake made when creating a BFA was not including a provision for what happened if a couple had children.
“If you don’t do that, the agreement is pretty dead,” he said.
He said buyer’s remorse was the most common reason for challenging a BFA, and a deal that was too good for one party could be a pitfall because judges would look at such BFAs more critically.
It is not a judge’s job to rule on whether an agreement is fair but they can assess whether a BFA is appropriately written up and administered and set a BFA aside if it is not.
“They have to do so within the confines of the law, but if you make it too one-sided, they’ll try particularly hard to find a chink in the armour,” Mr Dickson said.
He said if there was the prospect of a BFA being challenged, most would still try to resolve a split out of court because the stakes were high in such situations.
Parents encouraged to suggest BFAs when lending to children
Caroline Counsel, principal at Caroline Counsel Family Lawyers and a spokesperson for the Law Institute of Victoria, said she had also noted a steady increase in requests but put the rate considerably lower than the other firms spoken to, estimating a 25 per cent rise over five years.
She preferred not to refer to BFAs simply as financial agreements because ultimately it was the court that would decide if they were binding, should either party challenge them.
Ms Counsel said realistically there were not any alternatives to a BFA if the agreement was just between two partners, but other arrangements were possible where the “bank of mum and dad” were involved, including a registered or unregistered mortgage, where the parents were the mortgagee.
These gave parents security of repayment if, for example, a marriage failed, and the property was sold.
However, the legitimacy of the mortgage could be challenged if compliance with the terms of the mortgage were allowed to slide — for example if the parents allowed skipped repayments.
Another alternative was some form of loan agreement, but this too could be subject to attack, depending on the behaviour of the parties.
Ms Counsel said if parents were concerned, she would always recommend a BFA because they could be direct parties in the agreement and because the terms could be constructed to be more enduring.
Ultimately, it was security that Sagaria and her wife also wanted, and she likened a BFA to marriage insurance.
“It is confronting, and they are not cheap to get in the first place, but then neither is house insurance, neither is car insurance, neither is medical insurance,” she said.