What is a Binding Financial Agreement (BFA)?
A Binding Financial Agreement in Australia is a legally binding document that outlines the financial arrangements between parties in a relationship. It can be used by couples to manage the property settlement process or division of their assets (financial resources) and liabilities, as well as to outline provisions for spousal maintenance, both during and after the relationship. BFAs can be made before, during, or after a marriage or de facto relationship.
Types of Binding Financial Agreements
- Pre-Nuptial Agreement (Before Marriage):
- Known as prenuptial agreements, this type of financial binding agreement (BFA) is created before the couple gets married, detailing the division of assets and financial responsibilities if the marriage ends.
- Post-Nuptial Agreement (During Marriage):
- This type of BFA is made after the couple is married but before any separation occurs, specifying how assets and liabilities will be divided if they separate or divorce.
- Separation Agreement (After Separation):
- This BFA is made after the couple has separated, outlining the division of property and financial arrangements moving forward.
- Divorce Agreement (After Divorce):
- An agreement made after the divorce has been finalised, covering the distribution of remaining assets and financial responsibilities.
Legal Requirements for a Binding Financial Agreement
- Independent Legal Advice:
- Both parties must obtain independent legal advice from a qualified lawyer. The lawyer must provide a statement confirming that advice was given on the effect of the agreement on the rights of the party and the advantages and disadvantages of entering into the agreement.
- Written Agreement:
- The BFA must be in writing and signed by both parties.
- Full Disclosure:
- Both parties must make full and frank disclosure of their financial circumstances to ensure fairness.
Advantages of a Binding Financial Agreement
- Certainty and Control: Provides clear guidelines on the division of assets and liabilities, reducing potential conflicts.
- Flexibility: Can be tailored to meet the specific needs and circumstances of the parties involved.
- Protection: Protects the financial interests of both parties and ensures a fair distribution of property.
Enforceability and Challenges
A BFA is legally binding and enforceable; however, it can be set aside by a court under certain circumstances, such as:
- Fraud or Misrepresentation: If one party did not disclose all relevant financial information.
- Duress or Undue Influence: If one party was pressured into signing the agreement.
- Unconscionability: If the agreement is deemed grossly unfair or unjust.
When can a BFA be set aside?
A review of Thorne and Kennedy [2017] High Court of Australia 49
Most family lawyers shy away from binding financial agreements (BFAs), and that is because they can be overturned even when you give them the utmost amount of consideration. In Thorne and Kennedy that is exactly what happened, a lawyer advised someone not to sign a family law financial agreement, they did it anyway and lucky for them the binding financial agreement was overturned in their favour.
Facts of the case the saw a BFA set aside
The facts of the case are as follows:
- The parties met over the internet in 2006.
- Ms Thorne, an Eastern European woman, was 36 years old and living in the Middle East. She had no substantial assets. Mr Kennedy was a 67-year-old property developer, with assets worth between $18 million and $24 million.
- Ms Thorne relocated to Australia in February 2007, roughly 7 months after meeting Mr Kennedy and in furtherance of the relationship. Their wedding was set for 30 September 2007.
- On 19 September 2007, Mr Kennedy told Ms Thorne that they were going to see solicitors to sign an agreement and advised her that if she did not sign the agreement, the wedding would not proceed.
- The next day, Mr Kennedy took Ms Throne to see a different solicitor to obtain advice about the agreement. This was the first time that Ms Thorne had become aware of the contents of the agreement.
- The solicitor advising Ms Thorne produced written advice, describing the provision for Ms Thorne under the agreement as ‘piteously small’ in light of Mr Kennedy’s significant wealth.
- The solicitor’s advice concluded that it was evident that Ms Thorne was ‘under significant stress’ in the lead up to the wedding, and that Ms Thorne appeared to have been put in a position, where, in order for the wedding to proceed, the agreement was required to be signed, regardless of whether or not it was fair.
- The solicitor also provided oral advice to the effect that this was the ‘worst agreement that she had ever seen’ and advised Ms Thorne against signing the agreement.
- Ms Thorne signed the agreement four days prior to the wedding. Contrary to the solicitor’s advice, Ms Thorne signed another agreement, in similar terms, a short period after the wedding.
What are the issues the court considered in overturning the BFA?
The primary issue in this matter is the implications for parties entering into financial agreements, particularly when duress, undue influence and unconscionable conduct is present.
To establish duress, the Court was required to determine whether Ms Thorne had any choice but to sign the agreement.
The initial decision that saw the BFA set aside
After the parties had separated, Ms Thorne was successful in the Federal Circuit Court for both agreements to be set aside. The primary judge recognised Ms Thorne’s signed both agreements under duress so that the wedding would proceed. Her Honour described Ms Thorne as being ‘powerless with no choice’ but to sign the agreement. Ms Thorne’s application was successful, based on six key factors. These key factors were:
- Ms Thorne’s lack of financial equality with Mr Kennedy;
- Ms Thorne’s lack of permanent residency status in Australia at the time;
- Ms Thorne’s reliance on Mr Kennedy for all things;
- Ms Thorne’s emotional connectedness to her relationship with Mr Kennedy and the prospect of motherhood and a happy, married life;
- Ms Thorne’s emotional preparation; and
- How public the upcoming marriage was.
The husband died during the first Court proceeding and his adult children continued the matter on appeal.
But they appealed the decision and…they won!
The husband appealed the decision, and the Full Court of the Family Court found in favour of the husband. The Full Court found that there had been no misrepresentations by Mr Kennedy regarding his financial position and that it was made clear that Ms Thorne would not receive any of his wealth upon separation.
It was held that there was no duress or undue influence on Ms Thorne as she had no concern about what she would be able to receive upon separating. Further, it was held that there was no unconscionable conduct, as Mr Kennedy had not taken advantage of Ms Thorne.
The Full Court considered these agreements to be both fair and reasonable, as Ms Thorne was aware, from the commencement of their relationship, that his wealth was for his three adult children and she had accepted this.
It didn’t stop there. They appealed it all the way to the high court and the BFA got set aside
Finally, the High Court unanimously allowed Ms Thorne’s appeal. It held that the agreements were voidable under section 90K of the Family Law Act, based on the grounds of unconscionable conduct and undue influence of the Husband.
In regards to the unconscionable conduct, the High Court held that Mr Kennedy took advantage of Ms Thorne’s special disadvantage, which negatively affected her judgement as to her best interests.
Do you need legal advice?
Navigating the property settlement process on your own can be difficult at such an emotional time. Cudmore Family Lawyers are experienced in the complexities of BFA and can guide you. Contact Us today.
