Binding Financial Agreements (“BFAs”) are often described as “armoured” pre-nuptial (before marriage) or post-nuptial (after marriage) contracts. However, these agreements are not as impenetrable as some might assume. While BFAs can offer significant protection and certainty, there are situations where the courts may set them aside.
What is a Binding Financial Agreement?
A BFA is a private agreement between married or de facto couples that sets out how their assets will be divided in the event of separation. Unlike consent orders, BFAs do not require court approval to be legally binding. However, for a BFA to be enforceable, each party must receive independent legal advice before signing.
Grounds for Setting Aside a BFA
Under section 90K of the Family Law Act 1975 (for married couples) and section 90UM (for de facto couples), the Court may set aside a BFA on one or more of the following grounds:
- Fraud or Non-Disclosure
If a party conceals assets or provides false or misleading information, the BFA may be set aside. Courts take a dim view of any failure to provide full and frank disclosure.
- Intention to Defeat Creditors
If the agreement was entered into with the intention of defeating creditors or with reckless disregard for their interests, the Court can declare the BFA invalid.
- Impracticability
If there has been a substantial change in circumstances, such as assets listed in the agreement no longer existing, the Court may find that enforcing the BFA is impractical.
- Changed Circumstances Affecting Children
If the care, welfare, or development of a child has been significantly affected by a change in circumstances, the Court may intervene. For example, if a child develops special needs requiring ongoing financial support not contemplated when the agreement was made.
- Unconscionable Conduct
A BFA may be set aside where one party was pressured or taken advantage of unjustly. A well-known example is Thorne v Kennedy (2017), where a party was pressured to sign a BFA shortly before their wedding under threat of cancellation.
- Superannuation Issues
If the agreement includes superannuation interests that cannot legally be split or where a payment flag remains with no reasonable likelihood of being lifted, the Court may set the agreement aside.
- Technical Deficiencies
Strict legal requirements apply to BFAs. Errors in drafting, signing, or the legal advice process, such as an incomplete solicitor’s certificate or post-advice changes made without fresh legal advice, may make the agreement invalid.
Final Thoughts
While BFAs provide a useful framework for financial certainty, they are not foolproof. Courts will set them aside where necessary to prevent injustice or protect vulnerable parties. The best approach remains to negotiate a fair and transparent agreement with full disclosure, proper legal advice, and a shared understanding of its terms.
If you are concerned about a BFA you have signed or you are considering entering into one, it is essential to seek advice from an experienced family lawyer who can guide you based on your individual circumstances.
