Is a Financial Agreement Always Binding?

binding financial agreement

If done correctly, parties to a financial agreement should reasonably expect to be able to rely upon their agreement in the event of a separation.

However, there are several scenarios in which a financial agreement can be subject to being overturned. If one party wants to challenge the agreement, they would need to make an application to the court to set it aside. The financial agreement is binding until it is set aside by a Court.

The circumstances in which a financial agreement may be set aside are set out in s 90K and s 90UM of the Family Law Act 1975. Here, we’ll examine some of the more common grounds relied upon in applications to set aside financial agreements.

Fraud or material non-disclosure

A financial agreement can be overturned if there is fraud or material non-disclosure of either a very relevant factor or an asset that might have changed the view of the person agreeing. The court will consider whether had the other party had that knowledge at the outset, they would have agreed to the overall terms.

An example of this can be found in the decision of Adame & Adame [2014] FCCA 42 where the financial agreement was validly created but was set aside for several reasons. One reason was that the husband had deliberately withheld from the wife the fact that he owned substantial property in the United States. The court considered that while there was no obligation to disclose the exact value of the asset, the fact that he concealed its existence meant that there was no opportunity for the wife to make enquiries. The ground of material non-disclosure was met and the agreement was set aside.

Undue influence, unconscionable conduct or duress

If there has been any sort of undue influence, unconscionable conduct or duress, the court may set aside a financial agreement for those reasons also. This is subject to whether or not the behaviour meets the technical requirements of those particular legal remedies.

Typically a court will consider, amongst other things, the relative bargaining power of the parties, whether one feels pressure to sign (perhaps due to imminent wedding date), whether there have been threats or other actions to coerce the other party into signing the agreement and/or whether one party lacked understanding or capacity (for example due to a poor grasp of English or mental health challenges), as well as several other factors.

The Court in the case of Thorne v Kennedy [2017] HCA 49 considered these grounds in deciding whether or not to set aside a financial agreement. This case concerned the marriage of Ms Thorne, a 36-year-old Greek woman (with limited English) and no substantial assets, and Mr Kennedy, a 67-year-old Australian property developer worth between $18 and $24 million. The two planned to get married, and Ms Thorne moved to Australia.

Ten days before the wedding, Mr Kennedy took his soon-to-be bride to a solicitor to sign a financial agreement. She had not been involved in negotiating the terms. The solicitor told her it was the worst agreement they had ever seen and advised her not to sign it. Mr Kennedy told Ms Thorne that if she did not sign, the wedding was off. Her visa was due to expire if she didn’t marry Mr Kennedy. Ms Thorne signed it, despite the advice of her solicitor.

When the couple later separated, Ms Thorne received just $50,000 under the agreement. After multiple appeals, the High Court set aside the agreement on the basis that Mr Kennedy had taken advantage of his ex-wife’s vulnerability, applied pressure and acted unconscionably in the circumstances.

Technical defects

Previously there have also been a number of financial agreements set aside for technical defects.

These might arise where a lawyer has used the wrong section of the Family Law Act or used a template for a financial agreement and forgotten to change all the names. For example, the statements of legal advice have been signed by the right people but have the wrong parties names, even though it’s clear on the face of it that it’s all intended to be one document.

However, the courts have moved away from this ‘black letter’ approach to the law in recent years. Where technical defects arise, the court may adopt contract law remedies that fix the defect rather than set aside the whole agreement.

Significant hardship to a party or child of the relationship

If at a later date the terms of the financial agreement can be proven to cause significant hardship to a party or child of the relationship, a court may set it aside. However, this is an extremely high threshold to meet. The starting point for a financial agreement, absent fraud, duress or misrepresentation, is that parties should have the right to agree to their own terms. Therefore, the court is unlikely to set an agreement aside just because the effect of the agreement is unfair to one party later. An example of this played out in the decision of Frederick & Frederick [2018] FCCA 1694.

That case concerned a husband and wife who entered into a financial agreement before marriage. Those kinds of agreements are commonly referred to as pre-nuptial agreements. They already had one child and another one on the way. The agreement, in broad terms, said that the husband would retain his substantial assets (around $4 million in real property and shares) in the event of a split.

However, after the agreement was signed, it became clear that one of the children had very high medical needs and would require a very high level of care for the rest of their life. On that basis, as well as other grounds, Mrs Frederick sought to have the agreement set aside.

There is a provision in the Family Law Act for the court to make an order concerning the maintenance of a party to a marriage, even when there is a financial agreement in place, but only if “the court is satisfied that, when the agreement came into effect, the circumstances of the party were such that, taking into account the terms and effect of the agreement, the party was unable to support himself or herself without an income-tested pension, allowance or benefit.”

Mrs Frederick was unable to prove that this was the case. The financial agreement was not set aside in that circumstance.

The outcome of applications to set aside a financial agreement will turn on the facts of the individual case.

If you want to find out more about financial agreements, or whether an existing agreement might be subject to being set aside, please get in contact with our experienced Family Lawyer Toowoomba.

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