Key Takeaways:
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- A Binding Financial Agreement (BFA) is a legally binding contract in Australia that lets couples plan how to divide assets and finances if they separate or divorce.
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- To be valid, a BFA must be voluntary, include full financial disclosure, and require both parties to receive independent legal advice.
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- Can a Binding Financial Agreement be overturned? Yes, in limited circumstances it’s possible to overturn a BFA, such as misrepresentation, changes in circumstances, ambiguity, unconscionable conduct, or not following legal requirements.
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- Seek legal advice to challenge a BFA through negotiation, mediation, or court proceedings. Legal representation is crucial due to the complexity of family law.
Separating from your spouse can result in a lot of uncertainty and stress.
Often, you’ll need to work our new living arrangements and how to co-parent together, all while figuring out your new normal.
On top of these new pressures, you’ve also potentially got to work out how to divide your assets and property.
That is, unless you’ve already determined financial arrangements in the form of a Binding Financial Agreement (BFA).
A Binding Financial Agreement is a legal agreement that allows two parties to determine what will happen to their assets, property and liabilities in the event of their relationship breaking down. This provides a level of certainty and comfort for many people; however, it can also leave us wondering can a Binding Financial Agreement be overturned?
In this article, we’ll discuss Binding Financial Agreements in more detail, including who can make them, how they are made, and their enforceability.
What is a Binding Financial Agreement?
A Binding Financial Agreement, often referred to as a BFA, is a legally binding contract that allows couples in Australia to make specific financial arrangements regarding their property, assets, liabilities, and financial resources in the event of a separation, divorce, or the end of a de facto relationship.
These agreements are designed to provide clarity and certainty for both parties, ensuring that their respective financial interests are protected.
Some people know a BFA by the common term “prenup” or “prenuptial agreement”. A prenuptial agreement is a type of BFA that is agreed upon prior to a couple marrying. However, BFAs can be made at any point of a relationship, including prior to marriage, during marriage or a relationship, or even after a relationship has ended.
While some people believe that a BFA or prenup is unromantic and pessimistic, they offer a practical solution that allows couples to maintain a greater degree of control over their financial futures.
If a relationship ends without a BFA in place, the former couple will need to determine how to divide their assets and property. This can be done through a private agreement, mediation or through the Federal Circuit and Family Court of Australia and can be a contentious and difficult process.
Who can get a Binding Financial Agreement?
Binding Financial Agreements are available to a variety of individuals in different types of relationships. As they are commonly known as prenups, some people mistakenly believe that only married couples can enter into a BFA, however, they are not limited to married couples.
BFAs can be made between two parties such as:
- Married couples
- De Facto Couples
- Separated or Divorced Couples
It’s important to note that Binding Financial Agreements can be made between both heterosexual couples and same-sex couples.
In situations where the couple has already separated or divorced, a Binding Financial Agreement is a way that a financial agreement, such as their property settlement or spousal maintenance agreements, can be formalised and made legally binding.
Can a Binding Financial Agreement be Overturned?
The short answer to this is, yes, a binding financial agreement can be overturned.
A BFA can be overturned or “set aside” by the Court. However, this is not a decision the Court will make lightly. Before we discuss when and why a Binding Financial Agreement may be overturned, let’s first talk about what makes a BFA valid.
What makes a Binding Financial Agreement valid?
In order for a BFA to be valid and enforceable, a number of requirements must be met, including:
- A BFA must be voluntarily entered into
- Full financial disclosure from both parties
- Both parties receive independent legal advice
When can a BFA be overturned?
So, while Binding Financial Agreements have been designed to provide a level of certainty, they are not 100% ironclad and can be overturned or challenged by either party to the agreement.
Challenging or overturning a binding financial agreement can only happen in limited circumstances and these are outlined the in the family law system’s legislation, the Family Law Act 1975, in sections 90K for agreements between married couples and 90UM for de facto agreements.
Some of these reasons include:
Misrepresentation, fraud or lack of full disclosure
If one party to the agreement did not fully and honestly disclose their financial situation when creating the BFA, this would mean that they have not fulfilled their duty of full and frank disclosure, and it may be challenged. Complete financial disclosure is essential for a valid BFA otherwise it could be considered misrepresentation or fraudulent.
Material change in circumstances
If a significant change has occurred, such as a large decrease in wealth or the birth of a child that was not considered as part of the agreement, this could make the Binding Financial Agreement impracticable or invalid. Decisions that affect a child need to be made with their best interests as the paramount consideration. The current BFA could potentially result in hardship for the child which would not be in the best interests of the child.
The agreement is too ambiguous
If the Binding Financial Agreement was drafted in such a way that leaves it open to interpretation or is too ambiguous, it could be ruled as being invalid and set aside by the court.
Unconscionable Conduct, duress or coercive behaviours
A BFA can be challenged if one party can show that one party engaged in unconscionable conduct when the agreement was made. Unconscionable conduct is behaviour that is considered unfair, unreasonable or takes advantage of a vulnerable party while duress involves threats or pressure.
Legal formalities were not followed
If one party can show that any failure to meet the legal requirements for a valid BFA occurred, the agreement could be challenged. Examples of legal formalities include both parties receiving independent legal advice or full financial disclosure.
If the agreement includes interests that cannot be split
Some assets or properties could be included in the agreement that are not possible to split. For example, while superannuation is a type of property that can be split during a property settlement, there are circumstances that may lead to its exclusion from the property pool, such as if the superannuation account has less than $5,000 in it.
How can you challenge a Binding Financial Agreement?
As challenging a BFA can only happen in limited circumstances, we highly recommend seeking legal advice before taking any steps.
By first seeking legal advice, you can find out where you stand and if your concerns are valid. If they are valid, your family lawyer can help to guide you in terms of the relevant documents you need and identifying the exact grounds for challenging the agreement.
Before entering into court proceedings, you have the option of negotiating the situation with your former spouse. You may find that through negotiation or even mediation, you may be able to come to a new agreement.
An existing agreement can be terminated outside of court if the parties to the agreement either enter into a new binding financial agreement that includes a provision stating that the previous financial agreement has been terminated or if they enter into a termination agreement that is in accordance with the Family Law Act 1975.
If you’re unable to reach an agreement, you will need to file an application to the Federal Circuit and Family Court of Australia to initiate court proceedings. This will require providing evidence and information to the court and attending court hearings.
Whether you need to go through the Court system or you are able to work out a new agreement outside of Court, we cannot stress enough that having legal representation and support is vital. Family law is complex at the best of times, so when you’re dealing with a matter that has many restrictions and complexities as setting aside Binding Financial Agreements, it can be extremely difficult to work through.
How likely is it to be successful when challenging a Binding Financial Agreement?
While it is possible to have BFAs overturned, it’s impossible to tell you how likely it is that your matter will succeed.
Every situation is unique, and a wide range of factors can influence the outcome a family law legal matter.
If you’re concerned about an agreement that you’re a party to and you want some legal advice, get in touch with our Binding Financial Agreement lawyers here at Unified Lawyers. We can help you to understand all of your options and guide you through your next steps.
Case Study: Binding Financial Agreement Overturned
A case involving the validity of a Binding Financial Agreement is the relatively recent case of Thorne v Kennedy which occurred in 2017 in the High Court of Australia.
The case involved a former husband and wife, the husband was a wealthy Australian property developer (Kennedy) and the wife was a woman (Thorne) from the Middle East. The couple had met online in 2006 on a website aimed at finding brides when the man was 67 years old and the woman was 36 years old. The man’s assets were valued at around $18 to $24 million while the woman had no substantial assets.
Ms Thorne moved to Australia and only 10 days before she was due to marry Mr Kennedy, he took her to a lawyer to discuss a binding financial agreement he wanted her to sign. The agreement stated that if they were to separate, she would receive $50,000, as long as they had been married for at least 3 years. Ms Thorne was advised that agreement was unfair towards her and that she should not sign it.
Mr Kennedy told Ms Thorne that if she did not sign the agreement, he would not marry her. Ms Thorne’s family had come to Australia for the wedding, and Ms Thorne and her family would be stranded if the wedding didn’t go ahead, so she signed the agreement.
The couple separated in 2011, after 4 years of marriage, and Ms Thorne was given a lump sum based on the terms of the Binding Financial Agreement.
The enforceability of the agreement came into question after the marriage broke down and this resulted in lengthy court proceedings. Initially in the Family Court, it was ruled that Ms Thorne signed the agreement as a result of duress and undue influence as Ms Thorne had no support system in Australia and was reliant on Mr Kennedy. Mr Kennedy appealed this decision in the Full Family Court and the first judgement was overturned. Ms Thorne then brought the matter to the High Court where the Court found in her favour and the agreement was ruled as being invalid.
This case showed that even though an agreement was made following the legal requirements, it does not mean that the agreement can’t be ruled as void if it had been made under duress or undue influence. It also showed the importance of having adequate time to prepare and consider legally binding agreements.
How can I ensure that my binding financial agreement won’t be overturned?
While a Binding Financial Agreement is not 100% ironclad, you can increase the chances of your BFA standing up to scrutiny by following these steps:
Working with an experienced family lawyer to create and review the agreement
A qualified lawyer can help to draft a Binding Financial Agreement and ensure that all factors, including legal requirements are met. It’s important to consider the agreement from a variety of perspectives, including the ways in which the agreement could be challenged. Our past experience enables us to make these considerations. And as we mentioned earlier, it’s also a legal requirement to seek independent legal advice before signing a BFA.
Ensure you’re being transparent and fulfilling your duty of disclosure
Both parties need to provide accurate and comprehensive information to avoid facing issues with an agreement in the future. If it is found that assets and information has been excluded, whether purposely or not, the agreement could be considered invalid, regardless of whether information was intentionally or unintentionally not provided.
Consider the fairness of the agreement
While you’re likely to be concerned about the outcome for you (and your children), it’s important to ensure that agreements are fair to both parties. The Australian family law system has been developed to ensure that as much equality can occur as possible. In matters that involve property and assets, an agreement must be considered just and equitable to be valid.
Do you need help with a BFA?
Whether you’re thinking about entering into a Binding Financial Agreement, asking your partner to sign one, or you’re questioning the validity of a current agreement, here at Unified Lawyers, we can help you.
Our family lawyers are experienced in a wide range of family law matters, including but not limited to challenging Binding Financial Agreements. We can answer your questions, provide you with guidance, review agreements, draft agreements or help you to challenge your agreements.
Talk to our experience family lawyers today. You can get in touch with us at any time by calling us on 1300 667 461 or booking a free consultation using the button below. Our family law services are available Australia-wide.
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