Binding Financial Agreements (BFAs), commonly referred to as prenuptial or postnuptial agreements, serve as an important tool for Australian couples who wish to outline the division of their assets in the event of separation or divorce. While BFAs provide clarity and security for many couples, it’s important to understand that these agreements aren’t ironclad and can indeed be overturned by the courts in certain situations. This blog delves into the grounds and processes involved in overturning a BFA, using up-to-date Australian legal references and relevant case studies as at the time of publishing.

What is a Binding Financial Agreement?

A Binding Financial Agreement is a legally enforceable agreement under Australian law that sets out how a couple’s assets, liabilities, and financial resources will be divided if their relationship ends, and can deal with other things as well in certain cases such as maintenance and spousal maintenance. While commonly associated with marriage, BFAs can be created by de facto couples, married couples, people entering a de facto relationship, and even couples who have already separated or divorced.

There are several requirements for BFAs to avoid potential issues, and for a BFA to be binding and enforceable under Australian law, including but not limited to:

  • The agreement must be entered voluntarily.
  • Both parties must provide full financial disclosure.
  • Independent legal advice must be received by both parties.
  • Lawyers must certify that such advice was provided.

Find out more about BFAs here. 

Grounds for Overturning a BFA

There are specific grounds outlined under Sections 90K and 90UM of the Family Law Act 1975 which outlined circumstances where a court has the power to set aside a BFA (which is essentially to overturn the BFA). Some of these include:

1. Fraud or Misrepresentation

Fraud can involve deliberately withholding significant financial information or providing false information when drafting the agreement. 

2. Failure to Comply with Legal Requirements

A BFA can be overturned if legal formalities are not followed. These include the absence of independent legal advice or inadequate documentation proving such advice in some circumstances.

3. Unconscionable Conduct or Duress

Courts may overturn a BFA if one party was coerced into signing it, either through undue influence, emotional pressure, or outright threats. The landmark case Thorne v Kennedy [2017] exemplifies this, where the High Court invalidated a BFA after determining the wife was subjected to significant pressure and undue influence shortly before the wedding (source).

4. Material Change in Circumstances

Material change in circumstances that has occurred relating to the care, welfare and development of a child and, as a result, there is certain hardship suffered.

5. Impracticability

BFAs might be overturned if circumstances have arisen since the agreement was made, it is impracticable for the agreement or part of it to be carried out.

How to Challenge a Binding Financial Agreement

To challenge a BFA, there is generally a detailed legal process to follow, such as:

  1. Legal consultation: Consult a specialist family lawyer who can assess the merit of your challenge and your prospects of success in making such a challenge. The advice of a barrister at this step can be invaluable.
  2. Mediation or conciliation: Attempt to resolve disputes out-of-court.
  3. Carry out pre-action procedures: You need to consider how the relevant pre-action procedures apply to your case and which steps you must take before applying to the court.
  4. Filing an application: File an application with the Federal Circuit and Family Court of Australia.
  5. Serving the application: Formally serve the documents on the other party pursuant to the relevant Rules.
  6. Gathering evidence: Collect documentation such as financial records, communication evidence, or proof to support your case.
  7. Response from the other party: The other party may defend the BFA’s validity and do so in their Response to Initiating Application. The other party must detail the orders they seek in response to the Initiating Application.
  8. Court process: There are specific steps in the court process which involve first mentions in the court, and can involve interim hearings as well.
  9. Explores avenues to settle: Any options to try and settle the matter without further litigation can be explored and considered, such as attending another mediation.
  10. Court decision: A judge will make a decision at a final hearing if the matter is not settled prior.
  11. Appeal process: Limited scope to appeal decisions under the relevant legislation. Specialist legal advice should be sought as soon as possible after final hearing given there are strict time limits to file an Appeal.

Alternative: Negotiating a New Agreement

Instead of going to court, it may sometimes be more beneficial for both parties to renegotiate the terms of the BFA amicably. This process can offer a quicker, less stressful, and more cost-effective resolution compared to formal court proceedings. It typically involves the following detailed steps:

  1. Mutual agreement to renegotiate: Both parties must willingly agree to revisit and adjust the original terms, acknowledging changes in circumstances or evolving financial positions.
  2. Independent legal advice: Each party should engage their own independent legal advisors to ensure they understand the implications of the new agreement fully and protect their rights and interests.
  3. Comprehensive financial disclosure: Both parties must openly provide updated and accurate information regarding their current financial positions, including assets, liabilities, income, and expenses.
  4. Negotiation and mediation: Parties can negotiate directly, through their lawyers, or employ a mediator to facilitate discussions. Mediation often helps manage emotions and ensures negotiations stay productive and balanced.
  5. Drafting and reviewing the new agreement: Once terms are agreed upon, a new BFA is drafted which will generally terminate the original BFA as part of it. Lawyers for both parties will review this document to ensure compliance with legal standards and confirm that it clearly reflects the intentions of both parties.
  6. Legal certification: Independent legal advisors for both parties must issue certificates confirming comprehensive advice has been given regarding the new agreement’s advantages and disadvantages, among other things.
  7. Finalisation and implementation: The newly negotiated BFA must be signed and formally executed. 

Negotiating a new BFA is often preferable because it preserves relationships, maintains control over outcomes, and minimises legal costs and emotional strain associated with court actions.

How Likely is Success in Overturning a BFA?

Success in challenging a BFA varies significantly, influenced by the specific circumstances and quality of evidence. Each case is unique, and courts assess each application carefully, considering a range of factors under the relevant legislation. However, the process of overturning a BFA can be expensive and time consuming and specialist advice should be sought. Costs and consequences can flow against an unsuccessful party in court.

Daykin Family Law is Here to Help

While Binding Financial Agreements are powerful tools offering financial security during relationship breakdowns, they aren’t ironclad and can be subject to later challenge. Understanding when and how these agreements can be contested is essential. If you find yourself questioning the fairness or legality of your BFA, seek expert legal advice promptly. Experienced family lawyers like Daykin Family Law can guide you through the complexities of your situation, ensuring your financial rights remain protected.