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When parties to a marriage or de facto relationship separate, either party is entitled to make an application for property settlements and/ or spousal maintenance under the Family Law Act 1975 (“the Act”).

However, parties are able to enter into Financial Agreements before or during their de facto relationship or marriage to essentially contract out of the Act.  If the Agreement is a “Binding Financial Agreement” pursuant to the Act then the Court is unable to exercise its powers pursuant to the Act.  In other words, if the Agreement deals with spousal maintenance and is binding, the court cannot determine a spousal maintenance application pursuant Section 72 of the Act.

What is required to make a Financial Agreement legally binding

Section 90G(1) (for married couples) and section 90UJ (for de facto couples) of the Family Law Act sets out what must be covered in a Financial Agreement in order for it to be binding:

1. The Agreement must be in writing and signed by all parties.

2. Before signing the Agreement, each party must be provided with independent legal advice from a legal practitioner regarding the effects of the Agreement, the rights of the party, the advantages and disadvantages at the time the advice was provided to that party of making the Agreement.

3. Either before or after signing the Agreement, each party is provided with a signed statement by the legal practitioner stating that the advice referred to above was provided to that party (whether or not that statement is annexed to the Agreement).

4. A copy of the statement referred to above was provided to the party and given to the other party, or a legal practitioner acting for the other party.

5. The Agreement has not been terminated or set aside by a Court.

A Financial Agreements may be set aside in the following circumstances

Financial Agreements may be set aside in the following circumstances:-

1. If there has not been substantial adherence to the formal requirements for Financial Agreements set out in the Family Law Act.

2. If the Agreement was obtained by fraud, including non-disclosure of a material matter.

• It is imperative that parties both made full and frank disclosure of all the relevant assets, liabilities and financial resources at the time the Agreement was entered into.

• The Court may consider the non-disclosure of a material financial matter with an intention to deceive the other party to the Agreement to amount to fraud and the Agreement could, on that basis, be set aside.

3. If a party entered into the Agreement for the purpose of defrauding or defeating a creditor or creditors of the party or with reckless disregard of the interests of a creditor or creditors. 

4. If the Agreement is found to be void, voidable or unenforceable. 

The Court will invoke ordinary principles of contract law and equity.  For instance, the Court may find that there has been a misrepresentation, mistake, acts of duress or acts of unconscionable conduct which would lead to the Agreement being set aside.  Some example that may constitute such principles include:  

Misrepresentation

This could make a Contract voidable if the representor has made a misrepresentation of fact which induced the representee to enter into the Contract. 

Mistake

This occurs where one party enters into a Contract under a serious mistake about its contents in relation to a fundamental term, and the other party is not only well aware about this, but deliberately sets out to ensure that the first party does not become aware of their mistake or misapprehension.

Duress

A Financial Agreement might be voidable on the grounds of duress if one of the parties has induced the other to enter into the Contract as a result of illegitimate pressure.  The duress does not need to completely overbear the will of the other party, it needs only influence or deflect that will. 

The effect of duress is to inhibit the will of a contracting party; that is, it impacts on their capacity to give consent.

Undue Influence

This occurs where there is use of influence by one person over another for the benefit of a dominant party or a third party.

Unconscionability

The key elements of this concept are that one party is under a special disability such as to render them unequal to the other contracting party, and that the disability was so evident to the other party, to make it unconscionable for an Agreement to be made.

What constitutes special disability may include poverty, need of any kind, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where such explanation was necessary.

Unconscionability looks at the conduct of the stronger party in dealing with a person under a special disability in circumstances where it would be inequitable that such conduct would be allowed to affect the outcome of a bargaining process.

5. If circumstances have arisen, since the Agreement was made rendering it impracticable for the Agreement, or part of the Agreement to be carried out.

6. If, since the Agreement was made, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child) and, as a result of that change, the child (or the child’s primary carer) will suffer.