Can a Binding Financial Agreement Be Overturned?
Binding financial agreements (BFAs) can be a valuable tool in family law matters, protecting individuals’ assets during a relationship breakdown. However, under the Family Law Act 1975, these agreements are not immune from being challenged and can be overturned. Several factors can lead to the courts setting aside a BFA, and understanding these factors is essential for ensuring your agreement stands.
Mutual Agreement
For a binding financial agreement to be valid, both parties must willingly agree to its terms. Whether a prenuptial agreement before marriage or a termination agreement after separation, it should be formed based on mutual consent, free of coercion.
Independent Legal Advice
Both parties must receive independent legal advice before signing a BFA. This advice must cover the rights each party is giving up and the possible future implications. Lawyers play a dual role in financial agreements. They must draft and review agreements to ensure they meet the criteria for fairness for both parties.
For example, in Thorne v Kennedy, the High Court set aside the agreement due to a lack of proper legal advice, contributing to its unfairness.
Kennedy was a wealthy Australian property developer who married a European woman he met online. He wanted his children to receive his wealth and preserve his family’s wealth. Ms Thorne signed two financial agreements close to her wedding. After lengthy court proceedings in which Mr Kennedy passed away, the agreements were overturned based on undue influence and unconscionable conduct.
Full Disclosure of Assets and Liabilities
Full disclosure of assets, liabilities, and financial details—like superannuation interests, investment portfolios, and property ownership—is required to ensure fairness. In cases where one party hides material matters, such as business interests, the agreement can later be challenged for failing to meet this essential requirement.
Common Reasons for Overturning a BFA
Evidence of Fraud or Duress
A BFA can be overturned if there’s evidence of fraud or coercion. For example, if one party signed the agreement under the threat of ending the relationship, the courts may consider this coercion. Court battles on this topic often focus on the pressure placed on a party to sign, as seen in the Thorne v Kennedy case.
Unconscionable Conduct
Unconscionable conduct occurs when one party takes advantage of the other’s vulnerable position. The Family Court of Australia can set aside a BFA if it finds the agreement was signed under unfair conditions that exploited the other party’s weaknesses.
Significant Changes in Circumstances
A material change in circumstances, such as a drastic shift in financial conditions, can also lead to a BFA being overturned. If one party experiences significant economic losses or gains, or changes related to parenting matters occur, the courts may consider whether the original terms remain fair.
Failure to Meet Legal Requirements
If the draft agreement has not been privy to independent legal advice on both sides or if the final agreement fails to meet the legal requirements outlined in the Family Law Act 1975, it can be overturned. This includes failing to seek independent legal advice or neglecting to disclose finances fully.
Legal Process for Overturning a BFA
Filing an Application with the Court
To overturn a BFA, one must file a court application with either the Family Court or Federal Circuit Court. This starts the formal process, requiring a detailed explanation of why the agreement should be invalidated.
Presenting Evidence
The application’s success depends on presenting strong evidence, such as bank statements, tax returns, or any documentation showing undue influence or fraud. The courts will carefully review all trial documents and witness statements to ensure the claim is substantiated.
Court’s Consideration and Decision
The court hearing examines the evidence, and the judge considers the agreement’s fairness. The Court Decision will hinge on whether the BFA was formed under equitable circumstances and whether any material changes warrant setting it aside.
Case Studies: When Courts Overturned BFAs
In the landmark case of Thorne v Kennedy, the High Court of Australia overturned a prenuptial agreement due to coercion and lack of adequate legal advice. Similarly, in Black v Black, the court found that the BFA was unfair and did not account for the wife’s future financial needs after a relationship breakdown. These cases serve as precedents in Australian case law.
How to Protect Your BFA from Being Overturned
Ensuring Independent Legal Advice
Before entering a BFA, both parties should seek independent legal advice. This ensures that each party fully understands their rights and obligations. Seeking advice from a qualified family law solicitor will protect the agreement from being challenged later on.
Comprehensive Disclosure
Ensure full disclosure of all financial assets, including business interests, investment portfolios, and superannuation interests. Transparency is key to avoiding disputes about the agreement’s fairness.
Regular Updates and Reviews
Life circumstances can change, so reviewing and updating your BFA regularly is important. This could include revisiting the agreement if there are major material changes, such as the birth of a child, changes in business ownership, or significant shifts in financial wealth.
Alternatives to a BFA
Consent Orders
Instead of a BFA, parties may choose to use consent orders, which the court approves and offers a legally binding alternative for property division and other family law matters.
Postnuptial Agreements
A postnuptial agreement is another alternative for couples who want to arrange financial matters after marriage. Like a BFA, it requires independent legal advice and full disclosure to be valid.
Conclusion
Importance of Legal Advice
Seeking independent legal advice before signing any financial agreement is crucial to protect your rights. Legal advice can safeguard your interests and ensure the agreement holds up in court.
Understanding Your Rights and Obligations
It’s essential to understand your obligations under a BFA. If a material change occurs, such as a significant financial shift, knowing your legal options can help you seek a fair outcome.
Future Considerations and Legal Recourse
Finally, be proactive in revisiting your agreement over time. By regularly reviewing the terms, you can ensure that the agreement continues to meet the needs of both parties. If changes are necessary, updating the agreement will help you avoid future court disputes.
If you need advice regarding whether your Binding Financial Agreement can be overturned, please get in touch with our team today.