In Australia, two people can enter into an agreement which states what happens to their assets and debts in the event they were to separate. This agreement is called a (Binding) Financial Agreement, colloquially known as a “BFA” or “prenup”. It can be entered into:
- Before entering into a de facto relationship/marriage
- During a de facto relationship/marriage
- After a breakdown of a de facto relationship/divorce.
The decision in the 2017 case of Thorne & Kennedy resulted in the legal community having to reassess their approach when it comes to entering into Financial Agreements. In that case, the court set aside a Financial Agreement as it had found that the party in the more powerful bargaining position had exerted undue influence and engaged in “unconscionable conduct”, i.e., poor behaviour, in relation to the financially weaker party. Some factors that the court took into account include:
- The relative financial positions between the parties;
- What independent advice was received by the weaker party and the opportunity to reflect on the advice;
- The opportunity for the financially weaker party to negotiate the terms of the Agreement;
- The degree of dependency of the parties and the nature of their relationship.
The outcome of this case doesn’t mean that Financial Agreements are no longer secure. It does mean, however, that great care should be taken when it comes to drafting and entering into Financial Agreements to ensure that they are unlikely to be set aside if challenged in the future. “Unconscionable conduct” is one of a range of circumstances under which a Financial Agreement may be set aside. Another such circumstance is where there has been a material change of circumstances since making the Agreement, and as a result, the child of the relationship or the other parent will suffer hardship if the Financial Agreement were not set aside. Click here for a list of grounds under which a court may set aside a Financial Agreement.
The validity and enforceability of a Financial Agreement is not only dependent on the circumstances under which it was entered, but also how the Agreement itself is drafted. The Agreement must meet all the legislative requirements to ensure that it is both valid and enforceable.
Our expert family lawyers have considerable experience in relation to Financial Agreements and can advise you on how to best protect your assets. Please contact 0421 397 316 or jlok@oikosfamilylaw.com.au for an obligation free chat.
