Overturning a Binding Financial Agreement in Australia: Everything You Need to Know
A Binding Financial Agreement (BFA) is a legal contract between two parties, typically used to outline how assets and finances will be divided in the event of separation or divorce. These agreements can be made before, during, or after a relationship, whether it’s a marriage or a de facto relationship. In theory, BFAs provide certainty and can prevent lengthy court disputes over property and financial matters. However, there are situations where one party may seek to overturn a BFA, questioning its validity or fairness.
Overturning a BFA in Australia is a complex process governed by the Family Law Act 1975 (Cth). Courts are generally reluctant to set aside BFAs, but there are several legal grounds under which an agreement can be challenged. In this comprehensive guide, we’ll explore the legal grounds for overturning a BFA, the process involved, and relevant case law to help you understand your rights and options.
What Is a Binding Financial Agreement (BFA)?
A Binding Financial Agreement (BFA), sometimes referred to as a prenuptial or postnuptial agreement, is a legally binding document that outlines how assets, property, and financial resources will be divided in the event of a relationship breakdown. BFAs are commonly used to:
- Protect assets acquired before the relationship
- Preserve family wealth, such as inherited property
- Prevent disputes over property settlements and spousal maintenance
- Provide financial certainty for both parties
BFAs are regulated by Sections 90B-90KA of the Family Law Act for married couples and Sections 90UB-90UL for de facto couples. To be legally enforceable, a BFA must meet several strict requirements, including:
- Full and frank disclosure of assets and liabilities by both parties.
- Independent legal advice: Both parties must receive independent legal advice about the effect of the agreement and the advantages and disadvantages of signing it.
- The agreement must be signed by both parties.
- The lawyers providing advice must certify that the advice was given.
If these requirements are not met, or if the agreement is later deemed unfair or unreasonable, a party may seek to challenge its validity.
Grounds for Overturning a Binding Financial Agreement
Overturning a Binding Financial Agreement is not easy, but Australian family law provides several legal grounds under which a BFA can be set aside. These are set out in Section 90K (for married couples) and Section 90UM (for de facto couples) of the Family Law Act 1975.
1. Fraud or Misrepresentation
One of the most common grounds for overturning a BFA is fraud, which can include non-disclosure of assets or income, or providing false information about financial matters. If one party hides assets, undervalues property, or provides misleading financial information, the BFA may be invalidated.
Case Example: Black v Black [2008] FamCAFC 7
In Black v Black, the husband failed to disclose significant overseas assets when entering into a BFA. When the wife discovered this omission, she applied to have the BFA set aside on the grounds of fraud. The court agreed, ruling that the husband’s failure to provide full and frank disclosure of all relevant financial information invalidated the agreement. This case highlights the importance of honest and accurate financial disclosure in the creation of BFAs【86†source】.
2. Failure to Comply with Legal Requirements
For a BFA to be valid, both parties must receive independent legal advice before signing the agreement. This legal advice must cover the effect of the agreement on the rights of each party and the advantages or disadvantages of signing the BFA. If one party did not receive proper legal advice or if the documentation proving this advice is missing, the agreement could be set aside.
Case Example: Hoult v Hoult [2013] FamCAFC 109
In Hoult v Hoult, the wife argued that she had not received adequate legal advice before signing the BFA. The court found that although she had received some advice, it did not fully explain the disadvantages of signing the agreement. Consequently, the court ruled that the BFA should be set aside for failure to comply with the legal requirement that both parties must be fully informed【85†source】.
3. Unconscionable Conduct or Duress
A BFA may be overturned if it can be proven that one party entered into the agreement under duress, undue influence, or unconscionable conduct. This means that if one party was forced, coerced, or unfairly pressured into signing the agreement, the court may set it aside.
Case Example: Thorne v Kennedy [2017] HCA 49
In the landmark case of Thorne v Kennedy, the High Court of Australia set aside a prenuptial agreement on the grounds of duress and unconscionable conduct. The wife, a foreign national with limited English skills, was pressured to sign the agreement just days before the wedding. The husband’s lawyer told her that the wedding would be called off if she didn’t sign. The court found that the combination of emotional pressure and the wife’s vulnerable position amounted to unconscionable conduct, and the agreement was invalidated【86†source】.
4. Material Change in Circumstances
If there has been a significant change in circumstances since the BFA was made, particularly concerning the care of children, the court may set aside the agreement. This is especially relevant when the financial provisions of the BFA no longer adequately provide for the parties or their children.
Case Example: Parker v Parker [2011] FamCA 94
In Parker v Parker, the couple entered into a BFA that made no provisions for child support because they had no children at the time. Years later, when they divorced with two young children, the wife applied to have the BFA set aside on the grounds of a significant change in circumstances. The court agreed, finding that the agreement no longer reflected the parties’ financial responsibilities, particularly regarding child care【85†source】.
5. Impracticability
If a significant change in circumstances makes it impractical to carry out the terms of the BFA, the court may overturn the agreement. This ground is applied when unforeseen events make the terms of the agreement impossible or unfair to enforce.
6. Hardship to a Child or Party
A BFA may be set aside if it causes undue hardship to one of the parties or to a child. The court will consider whether enforcing the agreement would lead to an unjust outcome, particularly in cases where the financial circumstances of one party have changed significantly.
Case Example: Suttor v Suttor [2010] FamCA 356
In Suttor v Suttor, the wife sought to have the BFA set aside after the birth of the couple’s child, arguing that the agreement did not provide for the child’s financial needs. The court found that enforcing the agreement would cause undue hardship to both the wife and the child and ruled that the BFA should be set aside. This case demonstrates the court’s willingness to overturn agreements that unfairly disadvantage children【86†source】.
The Process for Overturning a Binding Financial Agreement
Overturning a Binding Financial Agreement involves a legal process through the Family Court or Federal Circuit Court. The process is often complex and requires careful legal strategy. Below are the key steps involved:
1. Legal Consultation
The first step is to consult with a family lawyer who can assess the merits of your case. The lawyer will review the BFA and the circumstances under which it was signed to determine whether there are valid grounds to challenge the agreement.
2. Filing an Application
If grounds exist to challenge the BFA, the next step is to file an application with the Family Court or Federal Circuit Court. This application must clearly state the reasons for seeking to overturn the agreement and provide evidence supporting the claim.
3. Gathering Evidence
Gathering evidence is crucial to proving that the BFA should be set aside. This can include financial records, emails, communication between the parties, legal advice documentation, or evidence of duress, fraud, or non-disclosure.
4. Serving the Application
The application and supporting documents must be formally served to the other party, ensuring they are aware of the proceedings and have the opportunity to respond.
5. Response from the Other Party
The other party can file a response to the application, typically arguing that the BFA should be upheld. They may provide their own evidence and arguments as to why the agreement remains valid.
6. Mediation or Conciliation Conference
In some cases, the court may require the parties to attend mediation or a conciliation conference to try to resolve the matter without a court hearing. Mediation can be a quicker and less adversarial way to settle disputes over BFAs.
7. Court Hearing
If mediation fails, the case will proceed to a court hearing, where both parties can present their arguments, evidence, and witness testimony. The court will evaluate the evidence to determine whether the BFA should be overturned.
8. Court Decision
After reviewing the evidence and hearing both sides, the court will decide whether to uphold, set aside, or vary the terms of the BFA. The court’s decision will be based on whether the agreement is legally binding and fair under the circumstances.
9. Appeal Process
If one of the parties is dissatisfied with the court’s decision, they may have the option to appeal the ruling. However, appeals are only granted in limited circumstances, usually where there has been an error in law.
Conclusion: Challenging a Binding Financial Agreement
Challenging a Binding Financial Agreement is a complex process that requires a strong legal basis and compelling evidence. While courts generally uphold these agreements, there are clear legal grounds—such as fraud, duress, unconscionable conduct, and material changes in circumstances—where a BFA may be overturned.
If you believe that your Binding Financial Agreement is unfair or was made under improper conditions, it’s crucial to seek expert legal advice as early as possible. With the right guidance, you can navigate the legal process effectively and work towards a fair resolution that protects your financial rights.
Understanding the legal principles surrounding BFAs and their potential for being set aside will help you make informed decisions and ensure that you are not bound by an agreement that no longer serves your interests.
decision to a higher court. However, appeals are only granted under specific circumstances, such as if there was an error in law or if new, compelling evidence has come to light. Appeals are not automatically granted and can be a costly and time-consuming process.
Case Studies on Overturning Binding Financial Agreements
The Australian courts have seen numerous cases where one party has sought to overturn a Binding Financial Agreement. These case studies illustrate the complexities involved in challenging a BFA and how the courts interpret various legal principles.
1. Thorne v Kennedy [2017] HCA 49
This case has become one of the most significant rulings in Australian family law regarding the setting aside of BFAs. In Thorne v Kennedy, a wealthy Australian property developer entered into a prenuptial agreement with his younger, foreign bride. The agreement heavily favoured the husband, leaving the wife with very little in the event of separation. Just before the wedding, the wife was presented with the BFA and was told that if she didn’t sign it, the wedding would be called off.
The wife later applied to have the agreement set aside, claiming that she was under duress and that the agreement was unconscionable. The High Court agreed, ruling that the circumstances under which the wife signed the agreement left her with no real choice. The court found that the power imbalance between the parties and the wife’s vulnerable position (being in a foreign country, dependent on the husband) amounted to unconscionable conduct. The BFA was overturned.
This case serves as a critical reminder that BFAs must be fair and that parties must enter into them voluntarily and without undue pressure. Even if all the legal formalities are met, the courts will set aside a BFA if one party is coerced into signing or if the agreement is so one-sided that it becomes unconscionable.
2. Hoult v Hoult [2013] FamCAFC 109
In Hoult v Hoult, the wife sought to overturn a BFA on the grounds that she had not received proper legal advice. Although she had met with a lawyer before signing the agreement, the advice she received was found to be inadequate, as it did not fully explain the disadvantages of the agreement or its long-term implications.
The court ruled that the legal advice provided did not meet the requirements of the Family Law Act, which states that both parties must receive independent legal advice about the effect of the agreement and the advantages and disadvantages of signing it. Since the wife did not fully understand the implications of the BFA, the court set aside the agreement.
This case underscores the importance of ensuring that both parties receive comprehensive legal advice when entering into a BFA. Simply ticking the box of having a lawyer present is not enough—parties must be fully informed about the consequences of the agreement.
3. Parker v Parker [2011] FamCA 94
In Parker v Parker, the BFA was set aside due to a significant change in circumstances. At the time the agreement was signed, the couple had no children. However, by the time of their divorce, they had two young children, and the financial provisions in the BFA no longer provided adequately for their care. The wife argued that the BFA should be set aside because it failed to account for the needs of the children.
The court agreed, stating that the birth of children represented a material change in circumstances that rendered the BFA unjust. The court emphasised that agreements that fail to consider future needs—especially when it comes to the care of children—are vulnerable to being set aside.
Legal Considerations and Challenges in Overturning BFAs
Overturning a Binding Financial Agreement is a serious and often complicated legal challenge. The courts tend to uphold BFAs if they meet all the formal requirements of the Family Law Act and if the agreement appears fair and reasonable at the time it was made. However, if you believe that your BFA should be overturned, there are several key legal considerations:
1. Importance of Independent Legal Advice
Both parties must receive independent legal advice before signing a BFA, and the advice must fully explain the effects and potential disadvantages of the agreement. If it can be proven that one party did not receive adequate advice, this can be grounds to challenge the BFA. However, the mere fact that a party regrets signing the agreement is not sufficient to overturn it.
2. Full and Frank Disclosure
BFAs must be based on full and frank disclosure of all assets and financial resources. If it is found that one party failed to disclose significant assets, or misrepresented the value of certain assets, the BFA can be set aside for fraud. This is particularly relevant when one party controls complex financial assets, such as businesses or investments, that the other party may not fully understand.
3. Time of the Agreement
The timing of the BFA is often scrutinised. For instance, if a prenuptial agreement is signed just before the wedding under the pressure of looming nuptials, the court may consider the timing as evidence of duress. In Thorne v Kennedy, for example, the agreement was signed mere days before the wedding, and the High Court found that this contributed to the wife’s lack of real choice in signing the agreement.
4. Changes in Circumstances
Courts are willing to set aside BFAs if there have been significant changes in circumstances since the agreement was made, particularly regarding the care of children. For example, a BFA that was fair when the parties had no children might become unfair once children are born and financial responsibilities increase. Changes in health, career, or financial status can also impact the fairness of the agreement and serve as grounds to challenge it.
5. Impact on Third Parties
While BFAs primarily affect the parties to the agreement, they can also impact third parties such as creditors or business partners. In some cases, BFAs are designed to protect businesses or family wealth. However, if the agreement unfairly disadvantages a third party, it may be vulnerable to challenge. For example, if the BFA results in one party being unable to meet their financial obligations, creditors may challenge the agreement.
Protecting a Binding Financial Agreement from Challenge
If you are considering entering into a BFA or already have one in place, there are steps you can take to protect the agreement from being challenged:
1. Comprehensive Legal Advice
Ensure that both parties receive comprehensive, independent legal advice that fully explains the implications of the agreement. The legal advice must be well-documented, and both parties should sign certificates confirming that they have been advised.
2. Full and Frank Disclosure
Make sure that both parties provide complete disclosure of all assets, liabilities, and financial resources. Any failure to disclose significant assets can render the agreement invalid.
3. Regularly Review and Update the Agreement
Circumstances change over time, and a BFA that was fair at the time of signing may become outdated. Regularly reviewing and updating the agreement can help ensure that it remains fair and reflective of both parties’ current financial situations.
