Can a Binding Financial Agreement Signed with Genuine Intent Still Be Set Aside or Terminated?

To avoid property disputes, signing a Binding Financial Agreement (BFA, often referred to as a prenuptial agreement) is a fairly common practice. A BFA is a legal instrument that clarifies the property rights and interests of both spouses, ensuring the couple’s financial arrangements are reasonable and fair, and reducing the possibility of future property disputes. Such an agreement is usually negotiated and signed voluntarily by both parties before marriage, but it can also be entered into during the marriage or after the relationship has broken down. It carries legal effect and can set out the specific division, management and succession of property in accordance with the parties’ wishes. In an earlier article, 《How Is Property Divided After Divorce in Australia?》, we covered the function, drafting process and validity of financial agreements. On the question of validity, we have previously noted that a BFA may be set aside if, at the time of signing, one party was (i) the significantly disadvantaged party, or (ii) subject to duress or undue influence, such that the agreement did not reflect that party’s genuine intent. In this article we take the question a step further: if both parties signed the BFA with genuine intent, can the agreement still be set aside or terminated?

What the Australian Family Law Act says

To answer up front: yes, it still can.

Under Family Law Act 1975 (Cth) s 90K, the court may set aside or terminate a financial agreement in the following circumstances:

S 90K(1)(a) — the financial agreement was obtained by fraud (including where a party failed to disclose their financial position truthfully); or
S 90K(1)(aa) — a party entered into the agreement for the purpose of defrauding or defeating a creditor, or with reckless disregard for a creditor’s interests; or
After the agreement was made, circumstances have arisen that make it impracticable for the agreement (or a part of it) to be carried out; or
Since the agreement was made, a material change has occurred in circumstances relating to the care, welfare or development of a child of the marriage, and as a result, if the court does not set the agreement aside, the child or a party with caring responsibility for the child will suffer hardship; or
In respect of the making of the financial agreement, a party to it engaged in conduct that was, in all the circumstances, unconscionable.

(This is not an exhaustive list — see Family Law Act 1975 (Cth) s 90K for further circumstances.)

Case study — material change in circumstances

Fredrick v Fredrick (2019) FLC 93

Mr Fredrick and Mrs Fredrick signed a BFA before marriage. The agreement provided that if the property held in Mr Fredrick’s name appreciated in value, Mrs Fredrick would only share in the appreciation of those assets specifically listed in the agreement. Ten years after signing, Mrs Fredrick applied to the court to have the agreement set aside. On appeal, it was argued that because the child had been diagnosed with a serious developmental disability and required significant funds for treatment and care, this constituted a “material change” in circumstances under the Family Law Act, and the agreement should therefore be set aside. Without additional financial support from Mr Fredrick, Mrs Fredrick would suffer hardship. The court held that in such a case the proper comparison is what would happen to Mrs Fredrick’s position if the BFA were enforced versus if it were not. On the court’s calculations, enforcing the BFA would leave Mrs Fredrick with $100,000, whereas setting it aside would leave her with $4,000,000. The court further held that Mrs Fredrick’s situation satisfied the “hardship” threshold under the Family Law Act, and that if the BFA were enforced the funds she received would not be enough to support and care for the child. Accordingly, the court set the BFA aside.

Takeaway

As this case illustrates, if a party’s circumstances change significantly after a BFA is signed, the validity of the agreement may be threatened. If such a change occurs, the agreement may need to be amended and re-executed — we recommend consulting a lawyer. As a precaution, if circumstances other than purely financial ones change, it is also worth asking a lawyer whether the agreement should be updated.

Case study — non-disclosure of assets

Parke & Parke [2015] FamCA 486

When drafting and signing the BFA, Mr Parke failed to disclose that he operated a self-managed superannuation fund (both parties were members of the fund, but Ms Parke was unaware of it). Having analysed the facts, the court found that Mr Parke had deliberately failed to disclose the fund. The BFA was therefore set aside. This case is a textbook example of a BFA being set aside because one party failed to disclose assets.

Takeaway

When signing a BFA you must disclose your assets truthfully. Both parties need to make full and honest disclosure of their financial position. If one party deliberately conceals assets or provides false information, the agreement may be rendered ineffective.

How should a BFA be properly signed, and what factors should be considered?

Properly executing a financial agreement involves a number of factors, including statutory requirements, both parties’ voluntariness, and adequate understanding and transparency. The following are matters to consider when signing a BFA:

A BFA must be signed voluntarily by both parties, with no threat, fraud or coercion of any kind. Neither party may be forced or pressured into signing.
Financial disclosure must be transparent and truthful. Both parties must fully disclose their financial position, including assets, liabilities and income. The agreement should be drafted on the basis of full information and transparency.
Both parties should consult independent legal practitioners before signing, to make sure the agreement is legally effective and adequately protects each party’s interests.
The terms of the agreement should be reasonable and fair, and should not favour one party; otherwise the court may treat it as ineffective.
A BFA should be drafted with sufficient time before the wedding, so that both parties have adequate time to consider it and obtain legal advice.
The agreement should anticipate circumstances that may arise in future, including breakdown of the marriage, appreciation of assets, and child support.
The agreement may specify whether it can be amended or terminated during the marriage, to accommodate changes that may occur.
Both parties should keep a copy of the signed agreement for any future need.

The reasonableness and validity of a property-division agreement are both crucial. A well-drafted BFA lets the parties resolve potential “hidden risks” in advance; if the relationship later changes, it can reduce friction and make it easier to move on to a new chapter of personal life more smoothly and amicably.

Final thoughts

Even a BFA signed with genuine intent on both sides may still be set aside or terminated — for example, where there has been fraud or a material change in circumstances. If you have questions about drafting a BFA, or need a lawyer to help you through the process, please feel free to reach out to our legal team.

We have written a series of articles on financial agreements — you may find the following of interest:

How Can Separation Under One Roof Satisfy the Divorce Separation Requirement?

Requirements and Procedure for Obtaining a Divorce in Australia

How Is Property Divided After Divorce in Australia?

An Overview of Child Support Agreements in Australia

Can Superannuation Be Split After Divorce?

What to Watch Out For When Dividing Property on Divorce in Australia

If My Spouse Had an Affair, Can I Claim a Larger Share on Divorce?

In Australia, Can a Sponsor Who Is Not Yet Divorced Sponsor a Third Party for a Partner Visa?

After Divorce, Do Step-parents Have a Duty to Maintain the Child?

How Is Child Support Allocated After Divorce?

Do You Need a Lawyer for Divorce? What Can an Australian Divorce Lawyer Do?