In previous articles, we have explained in detail the purpose of financial agreements and the process for drafting them. In short, a financial agreement is an agreement between two parties that sets out how their property will be divided when a marriage or de facto relationship ends. Once a binding financial agreement has been signed, the parties will divide their property in accordance with the agreement upon the breakdown of the marriage or de facto relationship. Unlike court orders, the court does not review the content of these agreements; it only requires each party to obtain independent legal advice before signing the document. Because these agreements are not reviewed by the court, it is possible for a party to sign the document without fully understanding its scope. Independent legal advice is intended to reduce the likelihood of this occurring, although it does not prevent a party from deliberately signing a document that has been described to them as unfair and biased against them.

So, is a financial agreement certain to be enforceable as long as it is signed in strict compliance with the required procedure? The answer is not necessarily. Let us first look at a case concerning a financial agreement.

Case Summary One: Serious Disadvantage to One Party

The couple was introduced in 2009 and began living together in the husband’s home in May 2010. Even so, the husband did not speak the wife’s native language, and the wife’s English was very limited, allowing her to carry on only the most basic conversations.

From early in the relationship, the husband told the wife that he wanted her to sign a financial agreement. The financial agreement was eventually drafted, and the wife signed it on 31 March 2011 in the presence of her solicitor, with the husband signing on 7 April 2011.

Notably, the financial agreement was written in English and was not translated into any language with which the wife was familiar.

The financial agreement provided that, if the marriage ended, the wife would have no right to any division of the husband’s pre-marital assets, regardless of how long the relationship had lasted or what contributions either party had made during the relationship. Assets accumulated during the relationship could still be divided according to each party’s respective contributions.

Later in 2011, the wife divorced her first husband in her country of origin and applied for a partner visa through a migration agent. The relationship ended in May 2016. On 16 May of the same year, the wife commenced proceedings seeking a declaration that a de facto relationship existed and seeking to set aside the financial agreement.

The court set out nine reasons why the wife was at a serious disadvantage at the time she signed the financial agreement.

The wife could not speak, read or understand English well, and she relied on the husband to help her understand English.

At the time the de facto relationship broke down, she had no knowledge of how the property would be divided, whereas the husband did.

She could not read the financial agreement, whereas the husband could.

She relied on the husband not to notify the Department of Home Affairs that she had breached her visa conditions;

Her financial security in Australia depended on the husband, because as at 31 March 2011 she was unable to work in the country, and her only source of income was the $2,000.00 that the husband paid her each month;

She relied on the husband for accommodation. She had no home of her own in Australia and no means of obtaining one, although she might have been able to rent;

She may not have realised that the financial agreement was obviously unfair until 31 March, when Mr E told her, but by that point she had already decided to sign the financial agreement;

The wife’s only path to permanent residence in Australia was to remain in the relationship with the husband and obtain a permanent visa, but the wife knew that the relationship would not continue if she did not sign the financial agreement;

The wife was afraid to return to country G because of her former husband, and her current husband was aware of this.

On the basis of those reasons, the judge held that, taken together, it could be established that at the time the wife signed the financial agreement she was in a position of special disadvantage in relation to the husband. Accordingly, the financial agreement was invalid, and the parties were to divide their property as if there were no financial agreement.

Case Summary Two: Signed Under Duress and Undue Influence

The couple met online in 2006 while the wife was living overseas. The wife moved to Australia in February 2007, about seven months after meeting the husband. The wedding was scheduled for later that year, on 30 September 2007.

The husband drafted a prenuptial agreement and told the wife that if she did not sign the agreement, the wedding would not go ahead. He first provided the agreement to the wife on 19 September 2007, eleven days before the wedding. The next day, he took her to see a solicitor so that she could obtain legal advice about the agreement. The wife’s family had already flown to Australia for the wedding and all of the wedding preparations had been completed.

The solicitor who advised the wife on the agreement stated that, given the husband’s wealth, the amount the wife would receive upon dissolution of the marriage was \u0022pitifully small\u0022. The solicitor also advised her not to sign the agreement, and told the wife that it was the worst agreement she had ever seen. She also noted that the wife appeared to be \u0022under enormous pressure\u0022 in preparing for the wedding, and that she seemed to be in a position where she had to sign the agreement in order for the wedding to go ahead, whether or not it was fair.

The wife signed the agreement four days before the wedding date, despite having been legally advised that doing so was not in her best interests. After marrying the husband, she also signed another agreement containing similar terms.

After the marriage broke down, the enforceability of the prenuptial agreement was challenged. The question was whether the wife had signed the agreement under duress, undue influence, or as a result of unconscionable conduct. The court held that the agreement was the result of duress and undue influence. In effect, the husband’s improper conduct rendered the agreement invalid.

Principle: Sign the Agreement in Accordance with Your Own True Wishes

From the two cases above, we can see that even a financial agreement signed in full compliance with the requirements may still be set aside by the court, if the court considers that one party to the agreement was under duress, undue influence or similar pressures at the time of signing.

In other words, when the court considers whether to uphold the validity of a financial agreement, it will consider whether both parties genuinely entered into the financial agreement voluntarily, voluntariness meaning that both parties fully understood the content of the agreement and signed it in accordance with their own true wishes, free from duress or undue influence.

One additional point: when hearing cases involving financial agreements of this kind, the court’s focus is not on whether the financial agreement is fair. That is, if at the time of signing both parties acted on their true wishes and fully understood the content of the agreement, then even a clearly unfair financial agreement will not necessarily be held invalid by the court.

What the court focuses on is whether, at the time the financial agreement was signed, both parties were acting on their true intentions. For example, where a party was subjected to the duress and threats seen in Case 2, it can be found that although that party signed the agreement, it was not in accordance with their true wishes; in Case 1, the party signing was subjected to undue influence, such that she may not have understood the content and meaning of the agreement, and it can similarly be inferred that she did not sign in accordance with her true wishes.

In Closing

Readers should be clear that the main reason a financial agreement may be set aside is not that the financial agreement is unfair, but that the signatory was subjected to undue influence at the time of signing such that the agreement did not reflect their true wishes.

If you or anyone you know is considering entering into a binding financial agreement, we strongly recommend that you obtain sound advice. That advice should cover not only the process for entering into a valid financial agreement, but also how to avoid circumstances in which the financial agreement may, for other reasons, not be upheld by the court, so that a financial agreement can best protect your interests.