Enforceability of Binding Financial Agreements in Family Law
Introduction
Binding Financial Agreements (BFA) in family law determine financial arrangements during and after a relationship. BFAs provide clarity and security regarding asset and liability division. However, their enforceability can be contested. This article explores the enforceability of BFAs and the conditions under which they can be set aside.
Understanding Binding Financial Agreements
A Binding Financial Agreement is a legally binding document between parties in a relationship. It outlines the division of assets and financial responsibilities. Under the Family Law Act 1975, sections 90B to 90KA govern BFAs. These sections detail their formation, enforceability, and conditions for being set aside.
Key Terms of the BFA
A BFA includes several clauses addressing asset and liability distribution in a relationship breakdown. Typical provisions include:
- Each party retains sole legal and beneficial ownership of their respective assets and liabilities as of the BFA’s date.
- Sole ownership of future acquisitions, such as gifts and inheritances, remains with the recipient.
- Both parties acknowledge that the agreement’s provisions are fair, equitable, and reasonable.
- The agreement acknowledges potential changes, including the birth of children and acquisition of future assets.
Moreover, a BFA should address specific changes in circumstances, such as the birth of children, acquisition of future assets, and substantial changes in employment circumstances.
Enforceability of a BFA
For a BFA to be binding and enforceable under section 90G of the Family Law Act, it must meet certain conditions:
- Both parties must sign the agreement.
- Each party must receive independent legal advice about the agreement’s effect on their rights and the advantages and disadvantages of entering into the agreement.
- The agreement must contain a statement confirming that the required legal advice has been provided.
Circumstances for Setting Aside a BFA
Under section 90K of the Family Law Act, certain conditions can lead to a BFA being set aside:
- Fraud: Including non-disclosure of material matters.
- Intention to Defraud Creditors: If the agreement aims to defeat creditors.
- Impracticability: If carrying out the agreement becomes impracticable.
- Significant Changes in Circumstances: Especially those relating to the welfare of a child, resulting in hardship.
Additionally, section 90KA allows the court to determine the validity and enforceability of a BFA based on principles of law and equity. Even if the agreement seems clear, the court may still review its enforceability to ensure fairness and adherence to legal principles.
Reasons a BFA May Be Unenforceable
Several factors can render a BFA unenforceable. Significant changes in circumstances not explicitly addressed within the agreement can introduce complexities. For instance, the birth of children, acquisition of new properties, and substantial changes in employment can make the agreement impracticable to enforce.
It is common for BFAs, especially those made before marriage, to be set aside due to the difficulty in predicting future events. Consequently, the complexity of future circumstances often necessitates a judicial review to ensure fairness.
Case Study: Hypothetical Scenario
Consider a hypothetical scenario where a couple decides to separate. One party wishes to enforce the BFA, while the other contests its applicability due to changes in circumstances. The contesting party may argue that significant changes since the agreement’s execution make it unfair or impracticable to adhere to its original terms.
For example, if the couple has children whose needs have changed significantly, the court may find that these changes warrant setting aside the BFA under section 90K. Other grounds for contesting the BFA may include:
- Fraud: If one party did not disclose material matters.
- Undue Influence or Duress: If one party signed the agreement under pressure without clear understanding.
- Significant Changes: Relating to the welfare of a child, resulting in hardship.
In such cases, the court will closely examine the conditions under which the BFA was signed. The court will consider whether both parties received appropriate legal advice and fully understood the agreement’s terms, as mandated by section 90G.
Implications of Setting Aside the BFA
If a BFA is set aside, the court may adopt the ordinary principles set out in section 79 of the Family Law Act to decide on adjustments. This involves a four-step approach:
- Assess the Property: Determine the extent and value of the parties’ property.
- Consider Contributions: Evaluate direct and indirect contributions, both financial and non-financial, to the marriage.
- Present and Future Needs: Assess the circumstances relating to the parties’ needs, resources, and earning capacities.
- Just and Equitable Order: Resolve what order is just and equitable in all circumstances.
This approach ensures that the redistribution of assets and liabilities considers all relevant factors, leading to a fair outcome.
Conclusion
The enforceability of a Binding Financial Agreement under the Family Law Act depends on various factors, including adherence to legal requirements and significant changes in circumstances. While BFAs provide a clear framework for asset distribution, their enforceability may be subject to judicial review to ensure fairness and equity. Understanding these complexities is crucial for anyone entering into or seeking to enforce a BFA.
