What Is A Binding Financial Agreement?

With what can be attributed to the influence of American television, most people have heard of a “pre-nuptial” agreement or “prenup”, but surprisingly many have not heard the terminology of ‘Binding Financial Agreement’. This begs the question – What is a Binding Financial Agreement? A Binding Financial Agreement and Pre-nuptial agreement are the same thing! – “Prenup” is simply an informal name for a Binding Financial Agreement.

What Exactly is a Binding Financial Agreement?

A binding financial agreement, or pre-nuptial agreement (“prenup”) is a legally binding document under the Family Law Act that outlines how a couple’s assets will be distributed upon the breakdown of their marriage or de facto relationship. A Binding Financial Agreement can also include provisions for spousal maintenance.

Sections 90B–90KA of the Family Law Act 1975 (Cth) deals with financial agreements by parties to a marriage, while sections 90UA–90UN deals with financial agreements by parties to a de facto relationship.

Prenuptial agreements may contain information about:

• Assets and debts;
• Joint and personally owned belongings and assets;
• Spousal maintenance;
• Expectations of any gifts and/or inheritances;
• Insurance coverage;
• How any property will be split; and
• What is covered in each party’s Will in the event of their death.

A Binding Financial agreement somewhat similar to orders made by the Family Court Of Australia or Federal Circuit Court Of Australia regarding the distribution of property of a relationship. There are however some key differences outlined throughout this article

When Can You Enter into A Binding Financial Agreement?

• Prior to marriage or the commencement of a de facto relationship
• Following the breakdown of the marriage or de facto relationship – If made after marriage, the binding financial agreement must be made within twelve (12) months of an order of divorce.
• During the marriage or de facto relationship.

How are Binding Financial Agreements legislated in Australia?

The factors that must be considered when forming a prenuptial agreements are covered under section 90G(1) of the Family Law Act 1975 (Cth). Any agreements formed will only become legally binding if, and only if:

• The agreement is signed by all parties; and
• Before signing the agreement, each spouse party seeks independent legal advice from a legal practitioner about the effect of the prenup on their legal rights; and
• Before signing the agreement, each spouse received a signed statement from a legal practitioner stating that they have received legal advice; and
• The signed statement from the legal practitioner has been served to the other spouse or legal practitioner of the other spouse; and
• The agreement has not been terminated OR set aside by the Court.

What Are the Benefits of A Binding Financial Agreement?

Transparency & Clarity – Binding Financial Agreements entered into prior to or during a relationship are a way to give each party certainty and a clear understanding of how their property will be distributed if their relationship unfortunately breaks down.

Flexibility – They also give parties the flexibility to decide for themselves how they want their assets to be distributed and set out the basis for the distribution of the assets in the agreement.

Protection – In cases of a second, third or even fourth marriage, a prenup will ensure that that your assets will go to your children rather than your new spouse.

Costs – Agreements entered into after separation are an alternative way to resolve property settlement matters without involving the Court. They can be far more cost effective than lengthy and stressful Court proceedings.

Speed – Binding Financial Agreements can also be prepared and executed quicker than Applications for Consent Orders, where there is often a delay between the filing of the proposed orders and the documents being approved and sealed by the Court.

However, prenuptial agreements carry with them great uncertainty and can cause great strain on a relationship before the marriage has even begun. Our experienced family lawyers here at JB Solicitors will assess your situation to determine whether prenuptial agreements are right for you.

What Are the Requirements Of A Binding Financial Agreement?

There are a number of procedural requirements for a Binding Financial Agreement to be valid, including:

• That the agreement is signed by both parties;
• That each party has obtained independent legal advice with respect to the advantages and disadvantages of entering into the agreement;
• That the agreement contains a statement signed by each party confirming that they have received that advice, together with a statement signed by each legal representative that they have provided that advice;
• That the agreement has not been terminated by the parties or set aside by a Court exercising its jurisdiction under the Family Law Act.

When Can A Binding Financial Agreement Be Set Aside?

Even if all the procedural requirements for a Binding Financial Agreement have been met, there are still limited circumstances in which they can be set aside.

These circumstances include:

• Where a party was forced to enter into the agreement or entered into the agreement under duress or undue influences;
• Where a party acted fraudulently in relation to the entering of the agreement;
• Where there has been unconscionable conduct by one of the parties to the agreement;
• Where there has been a significant change in circumstances in relation to a child of the relationship;
• Where the intent of the agreement was to avoid a party or the parties having to make payment to a creditor;
• Where the agreement is unenforceable or invalid due to incompleteness, mistake or uncertainty.

Are Binding Financial Agreements Still Worthwhile?

Case Study 1: Thorne V Kennedy [2017] HCA 49

This case demonstrates the Court’s strict approach in setting aside binding financial agreements when it has been unconscionably entered.

Facts:

• The parties met on a website to locate potential brides in 2006.
• Ms Thorne was from Eastern Europe and was living overseas at the time, with no substantial assets
• Mr Kennedy, a divorcee with three adult children, was a Greek-Australian property developer with assets worth between $18-24 million.
• After 7 months of chatting online, Ms Thorne moved to Sydney to marry Mr Kennedy.
• Approximately 11 days before their wedding, Mr Kennedy told Ms Thorne that they were going to see a solicitor about signing a prenuptial agreement, and that the wedding would not go ahead if she did not sign.
• However, an independent solicitor advised Ms Thorne that the agreement was drawn solely to protect Mr Kennedy’s interests and that she should not sign it.
• Ms Thorne understood the advice to be that the agreement was the worst agreement the solicitor had ever seen.
• She relied on Mr Kennedy for all things and believed that she had no choice but to enter into the agreement.
• On 26 September 2007, four days before their wedding, the parties signed the prenuptial agreement. This contained a clause that, within 30 days of signing, a post-nuptial agreement with similar terms would be signed.
• On 16 June 2011, less than 4 years into the marriage, the parties separated. Ms Thorne commenced proceedings against Mr Kennedy to set aside the two agreements, a property in the amount of $1.1 million and a lump sum spousal maintenance order of $104,000.

The High Court’s Decision:

On appeal to the High Court of Australia, Chief Justice Kiefel, and Justices Bell, Gageler, Keane and Edelman found that the agreements were void based on unconscionable conduct, under section 90K of the Family Law Act. The agreements may have also been made void due to undue influence.

Their Honours outlined Six Key Considerations to Set Aside the Agreements:

1. The agreements were not subject to negotiation between the parties; and
2. The emotional circumstances in which the agreement was entered, including any explicit or implicit threat to end a marriage or to end an engagement; and
3. There was little time for Ms Thorne to undergo careful consideration; and
4. The nature of the parties’ relationship; and
5. The relative financial positions of the parties; and
6. The independent advice that was received and whether there was time to reflect on that advice.

Ms Thorne was:

1. Powerlessness and had an inability to do anything besides sign the agreements.
2. This demonstrated that Mr Kennedy acted unconscionably and wielded undue influence over her decisions.
3. The unreasonableness of the agreements was exacerbated by the urgency and the pressure of the upcoming wedding, and that the wedding would not have gone ahead, had she refused to agree to his terms.

Thorne v Kennedy amassed great media attention and cast doubt as to whether binding financial agreements still held up in Court. The recent case of Frederick & Frederick [2018] FCCA 1694 provides some insight as to how future Courts dealt with this question.

Case Study 2: Frederick & Frederick [2018] FCCA 1694

In this case, Ms Frederick sought to set aside a binding financial agreement due to four key reasons:

1. She understood limited English; and
2. She never saw the financial agreement; and
3. She was forced to sign the agreement; and
4. The circumstances of their relationship had changed, and the agreement did not consider how the parents was to raise their autistic child.

The Court rejected these arguments and stated that the agreement was to remain in place for four key reasons:

1. The agreement met the criteria under section 90G, specifically that it was signed by both parties, had not been terminated or set aside, and met the requirement that each party received independent legal advice.
2. There was insufficient evidence to suggest that Ms Frederick did not understand the terms of the agreement, and that the legal advice she received did not explain its effect.
3. The contract was not vitiated by undue influence, as there was evidence demonstrating that improved terms were negotiated against resistance by her husband, and that Ms Frederick knew of amendments and accepted them; and
4. The contract was not vitiated by unconscionable conduct as Ms Frederick in fact understood English and was able to form the view that the financial agreement gave her some protection. Her options were not eliminated or severely confined like they were in Thorne.

Despite their differing outcomes, the cases of Thorne and Frederick demonstrate that there are prenuptial agreements must abide by the legal requirements contained in section 90G.

Binding financial agreements are still a viable option for those looking to protect their assets – it is simply crucial that they be performed within the parameters of the law, well-drafted and performed in a timely manner for them to remain in place.

When is the right time to sign a prenuptial agreement?

Ideally, a prenuptial agreement should be signed several months before the marriage takes place to reduce complications as your special day approaches. This will ensure that both parties have sufficient time to review and negotiate the terms of the agreement to ensure that a fair and agreeable outcome is made. It will also minimise the risk of the other party claiming that they entered into the agreement on the grounds of unconscionable conduct or undue influence.

Contact Our Expert Lawyers

Whether a Binding Financial Agreement is right for you and your relationship is something that will need to be determined on a case-by-case basis. We are happy to assist you whether you are looking to prepare a Binding Financial Agreement or seeking independent legal advice on an agreement that you have received. If you’re seeking to create a prenuptial or post-nuptial agreement with your spouse, or need assistance with any other family law matter, it’s time to find a reliable and experienced family lawyer.

Here at JB Solicitors, we’ll make the process as pain-free as possible. We have fixed-free pricing for family law, giving you a clear sense of the costs from the start and will be sure to help you out every step of the way. With years of experience under our belt, we pride ourselves in making each client’s family law experience as positive as possible.

Contact JB Solicitors to get started on your binding financial agreement, or for assistance with any other legal matter.

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