Bad deal Binding Financial Agreement (BFA)?

Court confirms it won’t set aside Binding Financial Agreements just because it’s a “bad deal”.

Since 2000 (for married couples) and 2009 (for de facto couples) parties to a relationship can chose to make private financial arrangements such as a Binding Financial Agreement at the beginning, during or at the end of a relationship.

Parties can enter into these agreements as they see fit and without employing the principles of law a Court would employ if they were to determine the division of property at the end of a marriage or de facto relationship.

Importantly, these changes of law allowed parties to reach agreement as to their future settlement before or during the marriage or de facto relationship, which up until then, had not been legally possible in Australia.

The advent of Financial Agreements (and Binding Financial Agreements) means that parties to a marriage or de facto relationship can strike whatever bargains they wish, provided the Binding Financial Agreement meets the formal and legal requirements for those Agreements. There is no legal requirement for the BFAs to be “just and equitable” according to the law or the facts of the case, as is required if the Court is to make property settlement Orders.

However, this is an area of law that continues to evolve, and the willingness and ability for the Court to set aside Binding Financial Agreements (BFAs) in certain cases has lead to the question – will the Court set aside a BFA because the Agreement was unfair to one of the parties?

In the case of Frederick & Frederick [2018], the Federal Circuit Court of Australia addresses this question. Although this is a “first instance” judgement and is therefore not binding on all other courts, it still provides useful guidance to those who may seek to have their Binding Financial Agreement set aside on the basis that the Agreement entered into was (amongst other things) a ‘bad deal.”

In that case, the parties entered into a Binding Financial Agreement before marriage. They had a child, and another one on the way at the time of the Agreement. However, after the Agreement was signed, it became clear that one of the children had very high medical needs. Therefore, after the parties separation, the Wife sought an Order of the Court that the BFA be set aside for various reasons, including that the terms of the settlement to be paid to the Wife in the event of a separation “are and were grossly unacceptable.”

The Court rejected this argument, and upheld the Binding Financial Agreement as sought by the Husband. Referring to the Agreement being heavily in the Husband’s favour, the court referred to the “usual financial imbalance in agreements of that nature”, and quoted from the case of Hoult v Hoult [2013] FamCAFC 109 wherein the Court said:

 “The point of the legislation is to allow the parties to decide what bargain they will strike, and provided the agreement complies with the requirements of section 90G(1) they are bound by what they agree upon.  Significantly, in reaching agreement, there is no requirement that they meet any of the considerations contained in se 79 of the Act, and they can literally make the worst bargain possible, but still be bound to it.  Their Honours also held that the “fairness” of the terms of the financial agreement is not relevant to the exercise of the discretion under s 90G(1A)….”the nature of agreements of this type means that their terms will usually be more favourable, and sometimes much more favourable, for one party.”

Nonetheless, the Court does have the power to set aside Binding Financial Agreements, and often does so. An example of the Court doing so is the case of Thorne v Kennedy [2017] HCA 49 – which you can read about in our article “Pre-nuptial Agreements in Australia – Are they still valid?”

However in the case of Frederick v Frederick, the Husband was able to prove with evidence, regardless of whether or not the BFA was a “bad deal” for the Wife, the Agreement was not procured by the husband through any undue influence exercised by him over the wife, or any unconscionable conduct by him towards the wife at the time of entering into the BFA.

This was not the situation in the case of Thorne v Kennedy in which the High Court was satisfied that the Husband’s conduct towards the wife at the time of entering into the Agreements was “unconscionable” and he had taken exploited the Wife’s “special disadvantage” to procure agreements so heavily in his favour, and so significantly detrimental to the wife’s interests.

As such, the learned Federal Magistrate Judge Harper in delivering judgement in Frederick & Frederick made clear that the case before him was fundamentally different factually to the case of Thorne v Kennedy, and as such, the outcome was to be different.

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