A Binding Financial Agreement may be set aside in a number of circumstances.
When can a court set aside a Binding Financial Agreement?
Under section 90K and section 90UM of the Family Law Act, the Court can set aside a Binding Financial Agreement in various circumstances. Some of the most common reasons Binding Financial Agreements are set aside are as follows:
- The Agreement was obtained by fraud (including non-disclosure of a material matter);
- The Agreement was entered into to defraud/defeat a creditor or with reckless disregard to the interests of the creditor;
- The agreement was obtained for the purpose of defrauding another person who is a party to a de facto relationship with the party;
- The Agreement was obtained by duress such that the person was not operating of their own free will when entering into the agreement (for example, where a BFA is signed under threat of not getting married/moving in together, or where one person is at a position of special disadvantage – for example, where one person is pregnant and feels they have no choice but to sign to receive financial support from the other party);
- Where a party fails to disclose assets relevant to the Agreement;
- Where there has been a change in circumstances since the agreement was entered into that make it impractical to carry out all or part of the Agreement;
- Where, since making the agreement, there has been a material change in circumstances relating to the care of a child of the marriage and as a result of the change in circumstances, it would result in hardship for the child or a party to the agreement (if a carer for the child) if the Agreement is not set aside.
If the Agreement is set aside, then each party is free to apply to the court for a property settlement under the Family Law Act 1975, like any other separated couple.
But what happens when an application is filed to set aside a Binding Financial Agreement?
Well the process is simple in nature but complicated in its application:
- You apply for the BFA to be set aside on the basis of one of the grounds set out in section 90K or section 90UM of the Family Law Act; and
- You apply for property settlement orders.
But how are these proceedings dealt with? Are they dealt with together at the same time with one hearing? Or, are the proceedings divided into two sets of proceedings i.e. one to set aside the BFA and if that is successful, the subsequent property settlement proceedings?
The issue of whether a Binding Financial Agreement is binding is a threshold matter that precedes the determination of the other substantive property settlement matters has been the subject of much controversy and argument within the court system.
There are pros and cons of both approaches.
This precise issue as to whether the Court should first determine whether a BFA is binding or not, prior to any consideration of an application for property settlement, was addressed in the recent case of Malone & Malone.
Malone & Malone – Setting aside a Binding Financial Agreement & Property Settlement Proceedings – to divide or unite?
In Malone & Malone, the Wife sought to set aside the Binding Financial Agreement due to undue influence or unconscionable conduct and upon success of that application, she sought property settlement orders and spousal maintenance orders.
In this case, the Wife sought to have both proceedings determined at the same time, in one Trial, whilst the Husband wanted a discrete hearing to determine the issue of whether the BFA was binding.
Rule 10.10 of the Family Law Rules provides that you may apply for a decision on any issue if the decision may:
- Dispose of all or part of the proceeding;
- Make a trial unnecessary;
- Make a trial substantially shorter;
- Save substantial costs.
Rule 10.10 is interpreted in the context of rule 1.04(1) which provides that the overarching purpose of the rules is to resolve disputes quickly, inexpensively and inefficiently.
The husband submitted that per rule 10.10 of the Family Law Rules, the discrete hearing as to whether the Binding Financial Agreement ought to be set aside should be dealt with first as it may prevent the need to discuss property adjustments and spousal maintenance matters. The Husband argued that hearing the matter discretely would therefore arguably reduce hearing time, expenses and preparation of the parties.
The wife submitted that the proceedings should be heard together, with one Hearing to determine both issues. She argued that there was significant overlap between the property adjustment, spousal maintenance and binding financial agreement proceedings. Further, the Wife argued that if she was successful in setting aside the Binding Financial Agreement, then factual matters from the discrete hearing would need to be revisited.
The wife submitted there was overlap in the BFA proceedings and the substantive property settlement proceedings, with regards to:
- Family Violence
The wife submitted that the issue of family violence was relevant to the setting aside of the binding financial agreement for unconscionable conduct/undue influence and it was also relevant in relation to the property settlement, as contributions during the relationship were made more arduous due to the family violence she was exposed to. This was contested by the Husband, but the court agreed there was factual overlap.
- Property Pool at Time of Entry to BFA
The wife submitted that the property pool at date of signing the Binding Financial Agreement was relevant in relation to whether the Binding Financial Agreement was to be set aside (to establish the BFA was manifestly unfair and a result of undue influence and/or unconscionable conduct), and, the property pool at the time of entry into the Binding Financial Agreement was relevant to the Husband’s alleged non-disclosure.
The Husband disagreed submitting that the issue would be the pool at the time of the trial. He pointed to the fact that he had disposed of and acquired assets post-separation and so the pool at entry to the Binding Financial Agreement would not be highly relevant.
The court considered that there was an area of overlap, as almost all entities in the schedule of assets in the Binding Financial Agreement were also in the Husband’s affidavit.
The wife further submitted that the parties would be in a better position to negotiate a resolution if the matters were heard together at one Hearing. The court agreed that it would aid resolution to have both matters heard together at the same time.
The Court acknowledged that there would be a degree of overlap of factual issues in the Binding Financial Agreement matter, property settlement, and spousal maintenance matters and a full understanding of the pool would facilitate dispute resolution.
However, the Court balanced this view by considering that:
- There are distinct differences between the proceedings as setting aside a Binding Financial Agreement is constrained by the points of claim documents and the principles of setting aside a Binding Financial Agreement are different to substantive applications;
- The differences between the proceedings are minimised by the wife’s submission that the Binding Financial Agreement was manifestly unfair, and some aspects of a substantive application may be relevant to this point;
- There is a “distinct factual difference” between the proceedings, and the point in time that the pool would need to be reckoned at in each;
- While there would be overlap, running the matters together would impose a “significant overburden of evidence, disclosure and days of hearing that are unnecessary” to the threshold question – being whether the BFA should be set aside;
- Prima facie, the husband is entitled to the benefit of the BFA, and the wife’s proposal erodes that benefit prior to a determination being made;
- Even if the court cannot measure the difference in terms of days of trial and preparation, it is significant enough to warrant splitting the proceedings;
- If the BFA is not set aside, the substantive trial will be unnecessary, significant costs will be saved, and significantly less preparation will be needed;
- Even though there is some overlap, the potential to save costs, time, and a substantive hearing, outweighs the costs that may be expended in re-addressing those issues if a substantive hearing is needed.
The Court ultimately held that the proceedings should be split and that whether the Financial Agreement is binding should be determined as a threshold matter prior to determination of the substantive matters.
Want more information?
Clients who are put off the cost of preparing a Binding Financial Agreement often go shopping for the cheapest quote. However, beware, lawyers who often bargain priced Binding Financial Agreements, as in our experience, when it comes to the preparation of Binding Financial Agreements, you get what you pay for.
There are various cases where Binding Financial Agreements have been set aside due to negligent drafting, failure to disclose or negligent legal advice.
Click the link to read more about Binding Financial Agreements where they have been upheld/set aside:
- Is my Binding Financial Agreement binding?
- Does my Binding Financial Agreement protect me from a maintenance claim?
- Superannuation splitting in Binding Financial Agreements
Contact us and book a reduced rate consultation and obtain advice from one of our experienced Brisbane Family Lawyers in relation to your specific circumstances and whether or not a Binding Financial Agreement or a Consent order is right for you.
For more information on Consent Orders versus Binding Financial Agreements, click the link to view Courtney’s helpful explanation video.
We can also help prepare a Prenuptial Binding Financial Agreement to help to protect you from having to divide your assets with your partner, should you separate in future.
More information about our unique fixed fee approach can be found on our Fixed Fees Page.
Article: co-authored by Rachel Elaurant and Courtney Barton.