When does a binding financial agreement become void?
Recently the High Court of Australia ruled a Binding Financial Agreement (BFA) ‘grossly unreasonable’ and kept aside the flawed agreement stating it cannot be legally enforceable. You may visit our article on finance and property settlement for more clarity on the legal aspects of such arrangements.
There are some legal prerequisites to a binding financial agreement, as mentioned below:
- Both the parties should have had access to independent legal advice on the terms of the financial agreement.
- Both the parties must have been well informed and understood the implications of the agreement in the event of their separation and enforcement of the contract.
- Two independent family lawyers of both the parties, witnesses and the parties in person must sign the agreement.
- The basis of the financial agreement must be ‘just and fair’.
The agreements can be called-off if the courts find the financial arrangement is not fair and just to either of the parties and implementing the contract positions either of the partners in deep financial distress and uncertainty at the end of their relationship.
If the court finds evidence of misleading information, coercion, or any other form of threat used by a partner to get the consent of his/her counterpart for the agreement, the court reserves the right to cancel such binding financial contract.
Having mentioned the backdrop of essential legal formalities to implement a financial agreement, here’s a case study that shows on what grounds the court cancelled the BFA between a couple.
Recently the court took up a property settlement case between a couple, among whom the wife had challenged the financial agreement and requested to declare it non-binding and provide the rightful share in the property settlement.
A couple entered a binding financial agreement before their wedding. The wife, of European origin, hardly had anything substantial financially. The husband, a wealthy businessman, and an Australian citizen had finances and property worth $20 million. He had three adult children from his previous relationship.
There was an agreement drawn between them before the wedding, which had two attorneys’ legal advice. One more financial agreement was signed after the marriage. The highlights of the arrangements are as below:
- During the matrimony, the wife would receive a minimum of $4000 a month and get a Mercedes Benz to drive.
- The wife’s family members can stay rent-free on the husband’s owned property.
- If they separate within three years, the wife will not receive anything. If they separate after three years and have no children of the relationship, she will be entitled to $50000.
- If the husband dies while the couple remains in the wedlock, the wife will receive $1.5 million worth residential property, minimum $5000 a month and Mercedes Benz.
The terms of the agreement revealed the husband’s inclination to keep the property to his children than allow his new wife’s claim to share. The husband also arranged an attorney for the wife, who did note the discrepancies in the agreement and brought it to the notice of the wife. The lawyer also remarked that she saw the wife under undue pressure and advised not to sign the agreement.
However, the agreements were signed both before and after the wedding. After four and a half years, when they separated, the wife appealed to the Federal Circuit Court to call-off the BFA and provided her spousal maintenance of $104,000 in lump sum and property share worth $11,00,000.
The appellant’s lawyers contested the agreement on the grounds of coercion, and undue influence on the client by her husband. The lawyers argued that the client signed the contract under the threat that if she didn’t sign the agreement, the marriage would be called off.
The above issues were brought to the court’s notice by the lawyers and ascertained that the contracts between people in intimate relationships like marriage must be entered on compassionate, mutual trust, respect and just grounds rather than pressure and take advantage of the partner’s financial status.
The court heard the case and called the financial agreement unreasonable and non-binding because:
The appellant came to Australia leaving her home country for the sake of this relationship. She left behind her life and minimal chattels and brought no financial value to the relationship. If she has to separate from the relationship, she will have nothing; No home, job, visa, social circle. The end of her marriage alliance would mean the end of everything for her.
The husband died during the court proceedings, and his adult children furthered the case proceedings.
The Full Court of the Family Court declared first agreement (entered before marriage) null and void but upheld the second agreement (entered after marriage) as viable. The High Court allowed the wife a special leave to appeal the decision.
The High Court sought clarification from both the attorneys on the incidents surrounding the creation and signing of the agreements, especially the second contract prepared after marriage. It asked the appellant’s lawyer whether she had any possibility of negotiating the terms of the agreement signed during the marriage.
The court found that the respondent hurried to get the agreement signed by the appellant, and criticised her lawyer for referring the agreement as terrible and suggesting not to sign the agreement.
The High Court overturned the Full Court’s ruling of upholding the second agreement and declared both the agreements non-binding on the grounds of Undue Influence, Unconscionable Conduct, and Duress.
Consult expert family lawyers in Melbourne and around on financial agreements, their scope and viability.
Case ref: Ms.Thorne Vs Mr.Kennedy (2017)