Setting Aside a Binding Financial Agreement
Since the turn of this century, family law property settlements in Australia have increasingly been formalised through Binding Financial Agreements. These agreements allow parties to determine how their property and financial resources will be dealt with, including following the breakdown of a marriage or de facto relationship, without necessarily requiring court approval of their financial arrangements.
However, a Binding Financial Agreement is not immune from legal challenge. Under certain circumstances, a court may set aside an agreement if it fails to satisfy the applicable legal requirements or is affected by circumstances that undermine its validity.
The legal principles governing the validity of Binding Financial Agreements draw upon both the Family Law Act 1975 (Cth) and general principles of contract law.
Section 90K(1)(b) of the Family Law Act 1975 (Cth) provides that a court may set aside a financial agreement if it is void, voidable or unenforceable.
Understanding the meaning of these three terms is important when considering whether a Binding Financial Agreement may be challenged.
Void Agreements: Invalid From the Beginning
A void agreement is one that is legally invalid from the outset. In other words, the agreement is treated as having no legal effect as a valid agreement.
For example, an agreement may be void where its purpose is unlawful, such as an arrangement intended to divide the profits of a drug-trafficking operation.
An agreement may also raise questions about validity where a party lacked the legal capacity required to enter into it. However, a mental illness or cognitive impairment does not automatically render an agreement void. The person's capacity must be assessed in the context of the relevant legal requirements and the circumstances in which the agreement was made.
The central question is whether the agreement is legally valid in the first place.
Where an agreement is void, its enforceability may be challenged because of the fundamental defect affecting its validity.
Voidable Agreements: Agreements That May Be Set Aside
A voidable agreement differs from a void agreement. Although it may initially operate as an agreement, circumstances surrounding its formation may provide grounds for a court to set it aside.
Examples may include agreements affected by misrepresentation, coercion or other circumstances recognised by law as undermining the validity of consent.
Misrepresentation may arise where one party provides materially false or misleading information to the other. For example, a party may misrepresent the value of an asset or provide misleading information about their financial circumstances before the Binding Financial Agreement is signed.
Such conduct may be relevant when determining whether the agreement should be set aside, depending on the nature of the misrepresentation and the applicable legal principles.
Coercion and domestic violence may also be relevant. A party may allege that they entered into an agreement because of threats, intimidation or improper pressure. In such circumstances, the nature of the conduct, its effect on the party and the surrounding evidence must be carefully examined.
It is important to distinguish between an agreement that one party considers unfair and an agreement that is legally voidable. An unfavourable outcome, by itself, does not necessarily provide grounds for setting aside a Binding Financial Agreement.
Where an agreement is voidable, a party will generally need to seek appropriate legal relief to have it set aside. Whether that relief is available depends on the circumstances and the relevant legal requirements.
Unenforceable Agreements: When Legal Requirements Are Not Satisfied
An unenforceable agreement is one that cannot be enforced in the circumstances, even though it may not necessarily be void.
In the context of Binding Financial Agreements, compliance with the statutory requirements of the Family Law Act 1975 (Cth) is particularly important.
These agreements are subject to specific formalities, including requirements concerning their execution and independent legal advice. Failure to satisfy the applicable requirements may affect the agreement's validity or enforceability.
For example, an oral agreement between parties concerning the division of proceeds from the sale of land may raise questions about enforceability under general contract law, particularly where the applicable legal requirements for transactions involving land have not been satisfied.
However, an oral agreement of this kind is not necessarily a Binding Financial Agreement under the Family Law Act 1975 (Cth). The distinction between an ordinary contractual arrangement and a statutory Binding Financial Agreement is important.
The legal consequences of a missing formality will depend on the nature of the agreement, the requirement in question and the applicable law.
For this reason, parties considering a Binding Financial Agreement should ensure that it is properly prepared, executed and supported by the required independent legal advice.
Can a Court Set Aside Only Part of an Agreement?
A further question arises where only one provision of a Binding Financial Agreement is defective or unenforceable.
Must the entire agreement be set aside, or can the remaining provisions continue to operate?
In some circumstances, a defective or unenforceable provision may be severable from the remainder of the agreement. Severance involves separating a particular provision from the rest of the agreement, potentially allowing the remaining provisions to continue to operate.
Where severance is legally available, it may be possible to preserve part of the agreement rather than set aside the agreement in its entirety.
However, this outcome is not automatic. The court must consider the terms of the agreement, the nature of the defect and the applicable legal principles.
The distinction between setting aside an entire Binding Financial Agreement and setting aside only part of it can have significant financial consequences for the parties.
Careful drafting is therefore important when preparing an agreement intended to govern future financial arrangements.
Why Legal Advice Is Important
Binding Financial Agreements can have significant consequences for the financial rights and obligations of the parties.
Before entering into an agreement, each party should understand its terms, its practical effect and the rights that may be affected.
Independent legal advice is an important safeguard. It enables each party to obtain advice about the agreement and is also relevant to compliance with the statutory requirements governing Binding Financial Agreements.
If an agreement has already been signed and concerns arise about its validity, a solicitor can assess the circumstances and advise whether there may be grounds to challenge it.
The fact that an agreement is financially disadvantageous to one party does not, by itself, mean that a court will set it aside. The relevant legal grounds must be established, taking into account the evidence and the applicable legislation
Binding Financial Agreements provide couples with a means of formalising property settlements and other financial arrangements without necessarily seeking court approval.
Nevertheless, an agreement may be challenged in certain circumstances. Under section 90K(1)(b) of the Family Law Act 1975 (Cth), a court may set aside a financial agreement if it is void, voidable or unenforceable.
Understanding these distinctions is essential when entering into a Binding Financial Agreement or considering whether an existing agreement may be challenged.
If you are considering entering into a Binding Financial Agreement, or have concerns about the validity or enforceability of an existing agreement, obtaining legal advice can help you understand your rights and options.
Disclaimer: This article is intended for general educational purposes only and does not constitute legal advice. The information provided should not be relied upon as a substitute for advice tailored to your individual circumstances.