While Binding Financial Agreements (BFA’s) are a popular way of providing certainty in the financial outcomes for people married or in de-facto relationships, they are notoriously technical and highly litigated, so this article examines whether you can be confident whether a BFA is applicable to your situation.
It took around 25 years following the establishment of the Family Law, for Australian law to introduce the option of Financial Agreements between parties in relationships and they have been litigated in terms of enforceability ever since.
In early court decisions, it was the technical aspects of these agreements were used to avoid them. [1.] Many lawyers would and still do refuse to draft them on the basis that there were too many technical requirements and it was just too dangerous.
The grounds of attack used to set aside these agreements are numerous, but first it’s helpful to list the 3 different types of a Financial Agreement contemplated in the Family Law legislation, which are agreements where the parties are:
- contemplating entering into a marriage; (the so-called prenup) s.90B
- already married and make an agreement during the marriage; s 90C and
- already divorced and an order has been made. (s90D)
Section 90G(1) of the Family Law Act outlines the legal requirements for a Financial Agreement to be binding – as seen below.
90G When financial agreements are binding
(1) Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if:
(a) the agreement is signed by all parties; and
(b) before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and
(c) either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and
(ca) a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and
(d) the agreement has not been terminated and has not been set aside by a court.
Note: For the manner in which the contents of a financial agreement may be proved, see section 48 of the Evidence Act 1995.
In general, the grounds which are commonly used to attack a binding financial agreement are really tied up with more general principles of contract and of equity. [2.] There are certain technical requirements that are set out in the Family Law Act which need to be satisfied [3.] but instead let’s discuss some of the contractual and equity issues and the recent cases that have identified principals in which a BFA can be set aside; – notwithstanding that it satisfies the technical legal requirements in the Family Law Act. [3.]
Does a Binding Financial Agreement need to be fair?
You would think that there may be an overriding obligation of fairness or reasonableness for parties entering into a BFA. In fact the test in the Family Law Act 1975 at s90(G)(1A)(c) was interpreted in several cases. These explored whether the use of the words, ‘unjust and inequitable’ were applicable to the general terms of the BFA or had a more limited meaning. [4.]
For it to be binding, according to the Family Law Act 1975, the court only needs;
S 90 G (1A(c) -…. to be satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement disregarding any changes in circumstances from the time the agreement was made;
The authorities seem to suggest that the parties can literally strike the worst bargain and still be bound by that bargain. [5.]
Does the information detailed in the Financial Agreement regarding the values of assets and liabilities need to be completely accurate?
As it is common for parties to attach a schedule to a BFA identifying the value of the assets or liabilities, one ground open to challenge is that the statement of the value is misleading.
The complete omission of an asset which is deliberate is different to expressing an opinion about the estimated value of an asset.
If the parties intended to estimate values based on underlying assumptions that were reasonable, then the expression of those assumptions in the agreement will provide a measure of protection in a claim to set the agreement aside.
Ultimately it is the intention of the parties about how they reflect their assets and liabilities at the time. [6.]
Is the agreement impractical to carry out?
In general terms, a court won’t intervene on this basis simply because there may have been a reduction or an increase in the value of some asset or assets. [7.] Nevertheless there are circumstances where the court has found that the agreement is impractical to be carried out; – particularly where one party diverted the other party’s only asset away from him without his knowledge. [8.]
Does the lead up to the signing of the binding financial agreement establish undue influence or alternately establish duress?
In general terms the test for undue influence or duress must be established in the lead up to the negotiations for entering into the agreement. Duress avoids contract where fear was induced, such as to deprive a party of their free will. The duress must have been the sole or at least the principal cause for signing the BFA. [9.]
Conclusion
Whilst a BFA is often desirable the opportunity to dispute this document depends on many possible circumstances. Options for certainty may exist outside of a BFA and should be considered before electing a BFA in your particular circumstances.
References
- Senior and Anderson (2011) 250 FLR 444
- Saintclaire & Saintclaire ([2013] FamCA 491 [3]
- S 90 (k) Family Law Act 1975
- Hoult v Hoult (2013) 276 FLR 412
- [Ibid 310]
- Manner and Manner [2015] FCCA 3043
- Sanger and Sanger (2011) 254 FLR 275
- Gregory and Gregory [2014] FCCA 106
- JW Carter, Contract Law in Australia citing Barton v Armstrong [1976] AC 104
