In my last blog I wrote about the Jury system, and whether or not it was the best way to determine a person’s guilt or innocence in a criminal trial.
This time I’d like to talk about another area in which I practice a lot – Family Law, and in particular about Binding Financial Agreements, popularly referred to by the public as a “pre-nuptial”, or just a “pre-nup”, agreement. Most lawyers, myself included, don’t like calling them “pre” or “nup” anything, because that’s not an accurate term for them, as they can be used before, during and after both a marriage and a de facto relationship. So more often than not you’ll find lawyers simply calling such agreements a “BFA”.
There is a lot of misunderstanding and confusion about what a BFA actually is, what it does and what it cannot do. A BFA is a legally binding property settlement agreement between a couple that sets out what is to happen with their property if the marriage or relationship ends. Until 2000 it was not legally possible to have an agreement of this nature, that was final and binding on the parties to a marriage – only the Family Court had sole legal authority to make final and binding decisions over how a couple’s property should be divided up between them after separation. In November 2000 the Family Law Act (FLA) was changed so that married couples could enter into a BFA either before they married, during the marriage or after the marriage broke down. In March 2009 the FLA was amended again so that now de facto couples can also enter into BFA’s.
When a couple enter into a BFA they are giving up their right to go to Court to have a Judge determine what they are entitled to under the law. Because the terms of the agreement are not vetted by the Court beforehand to make sure they are fair, it is necessary for each party to have the nature and effect of the agreement, and the advantages and disadvantages of entering into it, explained to them by an independent lawyer, and each party’s lawyer must also “sign off” on the agreement to certify that they have done so.
Although BFA’s are meant to be final and binding there are however several circumstances where a BFA can be struck down by the Family Law Courts under the FLA. Section 90K of the FLA says:
(1) A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
(a) the agreement was obtained by fraud (including non-disclosure of a material matter); or
(aa) a party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party; or
(ab) a party (the agreement party ) to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or
(ii) for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or
(iii) with reckless disregard of those interests of that other person; or
(b) the agreement is void, voidable or unenforceable; or
(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or
(e) in respect of the making of a financial agreement–a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
(f) a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or
(g) the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB.
The grounds most commonly encountered are those in paragraphs (a), (b), (c), (d) and (e) above. In other words if the agreement was obtained by fraud, including if one of the parties failed to disclose to the other some “material matter” (usually failure to disclose the existence of valuable assets), or it has since become impracticable to carry out the provisions of the agreement, or there has been a material change in circumstances concerning children and one of the parents will suffer hardship if the agreement is left to stand, or one of the parties to the agreement acted in an unconscionable way, then the Court can set the agreement aside.
Because of the Section 90K (1) “material change in circumstances involving children” ground there is a very real limitation on how much you can control what is to happen with property after separation in a BFA when there are children involved – under the Family Law Act when deciding childrens issues the Court’s paramount concern must be the welfare of any children, and this concern for the welfare of any children is also reflected here in the BFA provisions of the Act. So often, in order to try to ensure that a BFA is not struck down by the Courts, it is best not to try to extend the Agreement’s reach too far by purporting to control how all of the property is to be distributed even when there are children involved. Instead it may be best o keep it simple, perhaps by just trying to “quarantine” certain property that each party had to themselves before the marriage or relationship started, and to have in the agreement that any mutual property acquired during the marriage or relationship will be divided as agreed or, if agreement can’t be reached, then by the Court, according to the factors to be taken into account as specified in the Family Law Act, one of which is that, at the end of the day, the Court must make a decision that it considers to be “just and equitable” to both parties.
Another area where BFA’s can be set aside is Section 90K (1) (b), which says the Court can set aside a BFA if “the agreement is void, voidable or unenforceable”. Generally at law an agreement may be “void, voidable or unenforceable” if one of the parties to the agreement is at a “special disadvantage”, and entered into the agreement because of duress, undue influence or unconscionable conduct by the other party. This general law about contracts and agreements also applies to family law Binding Financial Agreements, through Section 90K (1) (b). The recent case of Parkes & Parkes [2014] FCCA 102 is a good example of when the Court will intervene and strike down a BFA pursuant to Section 90K (1) (b), if it is satisfied the Agreement was the result of duress or undue influence. In that case Judge Phipps of the Federal Circuit Court of Australia said, in summarising the facts and his legal judgment:
“To have the agreement set aside for duress, undue influence or unconscionable conduct the wife needs to establish that she was in a position of special disadvantage known to the husband. The special disadvantage can arise from a particular situation.
On [date omitted] 2008 the wife had been in a relationship with the husband for 6 years. She had been engaged to be married for 11 months and was to be married in three days. All the arrangements were made, all the guests had been invited, and the wedding reception had been paid for by the wife’s parents. The wife is then told by the husband that if she does not sign the prenuptial agreement the wedding is off. The wife was in the position of “special disadvantage”. If she did not sign the prenuptial agreement not only was the wedding cancelled but the likely result of such a traumatic event would be that the wife’s relationship with the husband would be over. This after six years and an 11 month engagement.
The wife says she considered that she had no choice. She was clearly in a position of special disadvantage and the husband knew so. The prenuptial agreement was not to the wife’s advantage. It gave her no rights at all in the future to any of the husband’s property. She knew that it was to her disadvantage because Mr C told her so. Nevertheless, she signed it because she considered she had no choice.
The husband knew that the wife was in a position of special disadvantage. The only inference from his late production of a completed and signed agreement is that he wanted to give the wife no choice and he knew that if it was presented to her days away from the wedding she would have no choice. I infer that the husband considered there was no risk that the wife would refuse to sign the binding financial agreement and cancel the wedding.
The wife’s consent to the agreement was not independent and voluntary because it was overborne thus she was subject to duress and undue influence by the husband. In the words of Mason J “the will of the innocent party is not independent and voluntary because it is overborne”. The requirements of duress or undue influence are satisfied”.
So His Honour ordered that the Binding Financial Agreement that Mr. Parkes had pressured his wife into signing two days before the wedding be set aside. This meant that Mrs. Parkes could proceed with her claim for a “just and equitable” share of the matrimonial property under the normal principles of the Family Law Act. BFA’s are meant to be voluntary, and each party must enter into the agreement of their own free will, and not because they have been pressured into it by the other party – so if you want to have a BFA don’t leave it until the day or two before the wedding, and don’t threaten to call the whole thing off if your beloved doesn’t sign.