When people think about a prenup, they picture assets: the house, the investment portfolio, the business built before the wedding. Debt gets much less attention. That's a costly oversight. A binding financial agreement (BFA) in Australia can absolutely address liabilities, but only if the parties draft it with debt in mind from the start. Getting this wrong can leave one partner exposed to the other's financial obligations if the relationship ends.
What debt can a prenup cover?
A BFA under the Family Law Act 1975 allows couples to set out how both assets and liabilities will be divided if the relationship breaks down. That language is broad enough to cover most forms of personal debt, provided the agreement spells them out clearly. Pre-existing debts are the most common concern: a HECS-HELP balance, a personal loan, credit card debt, or a business loan one partner brought into the relationship. A well-drafted BFA can quarantine those obligations so the other partner is not exposed to them in a settlement.
Debt acquired during the relationship can also be addressed. A BFA can specify whether joint debt (such as a mortgage) will be assigned to one partner, split proportionally, or handled in some other agreed way. It can do the same for future borrowings, including debt one party takes on independently during the relationship. That last category matters a lot for couples where one partner runs a business or carries higher earning risk.
What a prenup cannot do about debt
There is a firm limit here, and it trips up many couples. A BFA binds only the two parties who signed it. It does not bind creditors. So if both names are on a joint loan, the lender still has the right to pursue both borrowers regardless of what the prenup says about internal allocation. A clause reading "Partner A will repay the $40,000 personal loan" is enforceable between the two of you in family law proceedings. It is not enforceable against the bank.
This distinction matters enormously for separating a joint personal loan after separation. Even if your BFA allocates a debt to one partner, the other partner remains on the hook to the lender until the loan is refinanced or paid out. The prenup determines what happens in a family law dispute between you; it doesn't rewrite the contract with a third party.
Pre-relationship debt vs debt acquired during the relationship
The timing of debt matters in both family law generally and in your BFA specifically. Pre-relationship debt that one partner brought in is typically treated as that person's sole liability in a property settlement, but this is not automatic. Courts apply a discretionary four-step framework and can look at how the relationship changed each party's financial position over time. If your partner paid down your pre-existing debt during the relationship, that contribution is factored in.
A BFA gives you control over this otherwise unpredictable analysis. You can state explicitly that any debt each party holds at the date of the agreement remains theirs alone, that neither party will contribute to reducing the other's pre-existing liabilities, and that any appreciation or depreciation in net worth caused by those debts will not be shared. Specificity is what makes these clauses hold up. Vague language like "each party is responsible for their own debts" is far weaker than a schedule listing every loan by name, lender, and balance at the date of signing.
Business debt deserves special attention
Business-related borrowings are often the highest-risk liabilities in a prenup. A business loan secured against personal assets, a director's guarantee, or a line of credit can grow substantially over the life of a relationship. If the business does well, that's straightforward. If it fails, the debt can be catastrophic for both partners.
A BFA can specify that any business debt, whether existing or future, belongs solely to the partner who operates the business. It can also limit the other partner's exposure in a property settlement if business losses reduce the overall asset pool. This is closely related to protecting a business in Australia through a prenup more broadly, and the two concerns are worth addressing together in the same agreement rather than treating them as separate problems.
How to draft debt clauses that hold up
The Family Law Act sets strict requirements for a BFA to be enforceable. Both parties must receive independent legal advice from a qualified Australian lawyer before signing. That advice must cover the effect of the agreement and the advantages and disadvantages of entering it. A certificate of that advice must be attached. Without those steps, the entire agreement can be set aside, not just the debt clauses.
Beyond the technical requirements, courts have set aside BFAs where the drafting was unconscionable, where one party failed to disclose material financial information, or where undue pressure was applied. Full financial disclosure is especially important for debt. If one partner conceals a liability at the time of signing, the other can later argue the agreement was based on a false picture of the finances.
A schedule of liabilities attached to the BFA is the most practical approach. List every known debt: the lender, the type of loan, the outstanding balance, the interest rate, and who is responsible. Update the agreement if circumstances change significantly. A prenup signed in 2024 with a $200,000 mortgage schedule may be badly out of date if the couple refinances three years later and the liability doubles. Whether a BFA needs updating in those circumstances is worth discussing with your lawyer before, not after, it becomes a problem.
Practical steps before you sign
Before finalising any BFA that includes debt provisions, both parties should prepare a full list of every liability they hold, individually and jointly. That means credit cards, car loans, personal loans, student debt, tax obligations, and any informal debts to family members that might be captured in a property settlement. Both parties should also understand which debts are in joint names versus sole names, and what refinancing would be required to give a BFA allocation practical effect.
The goal is an agreement that reflects reality. A court asked to enforce or set aside a BFA will look at whether both parties entered it with clear eyes and accurate information. A debt-heavy agreement drafted on incomplete disclosures is asking for a challenge down the track.