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At LegalVision, our team of family lawyers are very experienced in drafting Binding Financial Agreements (BFAs). We often get asked by both our clients and their financial consultants why the firm requires such a detailed record of the assets and liabilities of both parties. Without full disclosure between parties to a BFA, the agreement may not be legally binding.
The importance of full disclosure
In a recent case, the Judge decided that a husband had not sufficiently disclosed his own finances, and, as a result, the BFA was set aside. This case highlights the importance of providing a true and honest account of your financial positions to ensure the BFA continues to be binding on both parties.
The Judge decided that within the standard recitals of the BFA was an implied term that required both parties to provide the other with a full and complete disclosure of each other’s finances, including their debts and liabilities. As all details were intended to be included, and clearly some were omitted, the normally binding nature of the BFA became null and void.
In most cases, when a family lawyer is asked to draft a BFA, there are three separate Schedules attached to the BFA; one documenting the husband’s combined assets and liabilities, one for the wife’s assets and liabilities, and finally, one detailing any assets jointly held by both husband and wife. These assets usually have approved values attached to them. In this case, however, there was no valuation of any of the assets, making it difficult for the Judge not to set aside the BFA in its substantially incomplete form.
It should come as no surprise that the Judge set the BFA aside, as the husband succeeded in omitting certain assets and financial details regarding those assets. This amounted to not disclosing “a material matter”, which the Judge saw as sufficient misconduct to warrant voiding the BFA entirely. This is because the wife would not have entered the BFA but for the misrepresentations made by her husband regarding the status of his assets/finances.
Despite best practice, the Court made the point that valuation of assets was not essential to upholding the binding nature of the BFA. The Court concluded that spouses could ordinarily make their own enquiries into the values of assets (or detriment of liabilities) listed in a BFA and that it was not necessary that these values be included.
In other words, as long as all assets are identifiable and can be shown to exist, it doesn’t matter that the values are not individually attached to each asset.
Had the husband not withheld significant details about his true financial position, the BFA may not have been set aside. Unfortunately, however, he was not honest about his assets and liabilities and is now paying the price.
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