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Pre- Nuptial Agreement – Traps in Binding Financial Agreement entered before Marriage

18/08/2021

A Binding Financial Agreement is a private agreement entered into by two people who are parties to a relationship. When these Agreements are entered into before a marriage (or a de facto relationship) they are often called Pre-Nuptial Agreements. In Australian they are Binding Financial Agreements.  The Family Law Act 1975 sets out the law in relation to how these Agreements can be effective and binding and how they can be set aside. 

When can you enter a Binding Financial Agreement?

Binding Financial Agreements (BFA) can be entered:

  1. Prior to a marriage or commencement of a de facto relationship;
  2. During a marriage or de facto relationship; and
  3. After separation of married people or those in a de facto relationship.

People enter into Binding Financial Agreement prior to or during a marriage or a de facto relationship to settle in advance what the division of their individual property and joint property will be if the marriage or relationship does not succeed and they divorce or separate. This avoids the parties having to go to the Family Court/Federal Circuit Court to have the Court work out what the property division between them will be.

The terms of a Binding Financial Agreement (so long as it complies with the requirements of the Family Law Act), apply and prevents either party to the Binding Financial Agreement from commencing proceedings in Court for property division. 

Traps for those entering Binding Financial Agreements before Marriage

There is a fundamental difference in the circumstances in which a Binding Financial Agreement is entered into before marriage or before a de facto relationship and those entered into after marriage.  The issue is that the future is not known.  What assets the parties may hold years or decades into the future will not be known at the time they entered into a Binding Financial Agreement.

There is no way of knowing with any certainty what the future holds and what will be a fair distribution of the assets between the parties after separation.

What gives a Binding Financial Agreement its effectiveness?

A Binding Financial Agreement will only be binding in the following circumstances:

  1. Where all technical requirements in the Family Law Act for the Binding Financial Agreement have been complied with. 
  2. Where the parties to the Binding Financial Agreement have obtained independent legal advice and the Legal Practitioner has provided a Certificate confirming the granting of Independent Legal Advice at the time of the execution of the Agreement. 

Watson & Watson - Advice of whether Binding Financial Agreement can be

Set Aside

Watson & Watson often advise parties as to their options when they have signed a Binding Financial Agreement and believe circumstances have changed and the Binding Financial Agreement should be set aside by the Court as being unenforceable. 

Watson & Watson Lawyers recently advised the wife in a case where she had entered into a Binding Financial Agreement with her husband prior to marriage. The husband had been previously married and divorced.  He was a wealthy man.  

In advance of his second marriage he wanted to ensure that he would not have to go to Court again and did not want the Court to decide his property settlement.

The husband insisted on a BFA. The wife entered into the Binding Financial Agreement with the husband and they married.  

Years passed and there were two children of the marriage. Difficulties arose in the marriage and the wife did not believe that the BFA (that she had entered into many years earlier and before marriage) was fair or equitable. She said that many things had happened during the marriage and that what had happened could not have been foreseen at the time the BFA was made.

The wife wanted the Binding Financial Agreement set aside and wanted the division of property and her future financial maintenance to be decided by a Judge and not by the BFA.

The wife sought advice from Watson & Watson on whether she could set aside the Binding Financial Agreement.

When can a Binding Financial Agreement be set aside?

The parties to a Binding Financial Agreement can enter into a new Binding Financial Agreement in which they agree to set aside the first Binding Financial Agreement and can include in the new Agreement, a different outcome for the division of property.

If a new BFA cannot be achieved, an Application could be made to the Court to set aside and vary the Binding Financial Agreement.

Section 90K (and Section 90UM) of the Family Law Act provides that:

(1)      A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:

(a)      The agreement was obtained by fraud (including non-disclosure of a material matter); or

(aa)    a party to the agreement entered into the agreement:

  1. for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
  2. with reckless disregard of the interests of a creditor or creditors of the party; or

(ab)    a party (the agreement party ) to the agreement entered into the agreement:

  1. for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or
  2. for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or
  3. with reckless disregard of those interests of that other person; or

(b)      the agreement is void, voidable or unenforceable; or

(c)      in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or

(d)      since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or

(e)      in respect of the making of a financial agreementparty to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or

(f)       a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or

(g)      the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.

Resolution and Outcome

In this case Watson & Watson Lawyers advised that:

  1. The BFA complied with all the technical requirements set out in Section 66G of the Family Law Act.
  2. That the prospects of the Court setting aside the Agreement were not high because the BFA was well drafted and very detailed. It provided for increases in payments to the wife over time. It made generous provision for the financial support of the children. It ensured that the wife would receive valuable property. The increase in payments to the wife was linked to the consumer Price Index.

On the basis of the advice, the wife instructed Watson & Watson to negotiate a new Agreement.  We entered into negotiations with the husband’s Lawyer and achieved a successful outcome for the wife, which enabled the wife to enter into a new BFA that:

  1. Set aside the First Binding Financial Agreement; and
  2. Provided the Wife with a better outcome as the separation became a permanent separation.

If you have entered a Binding Financial Agreement with your spouse/de facto partner and are concerned that it is not a fair spilt of assets, at Watson & Watson Lawyers our experienced Senior Family Lawyers can assist you in navigating this often times difficult scenario to enable you to secure a fair and equitable financial/property settlement that you are entitled to.  Please contact Richard Watson Senior Family Lawyers or his Personal Assistant Shereen Da Gloria to discuss your matter and seek appropriate advice sooner rathe than later.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.

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