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In certain situations and for certain reasons, a Binding Financial Agreement (“BFA”) is sometimes set aside or disregarded, either in whole or in part, if ever challenged in the Family Court. The following article will explore those circumstances and explain why this can occur.

You may remember the media coverage around the Family Court case in which Grant Hackett’s former wife sought to, and indeed succeeded in, setting aside their BFA.
As you may have guessed from the name, a BFA is supposed to bind all parties to the agreement, including the Court. It is, at its essence, a contract. Generally, a court will not intervene in circumstances where parties have entered into a BFA unless there are compelling reasons for it to do so.

There are, however, certain events or situations that can trigger the Court’s intervention, such that it can treat the BFA or some of its contents as if it had no weight or authority.
Nevertheless, there are certain circumstances that when satisfied, will form grounds for the setting aside of a BFA. These include:

Misrepresentation or fraud

To be fraudulent is to falsely assert something, with or without knowledge of the truth of the statement, in order to unjustly gain an edge on your partner. Fraud can involve some failure to disclose something a court considers relevant to enter the BFA. On the other hand, misrepresentation, while similar, is arguably less difficult to prove. To prove misrepresentation, it must be shown that there was a false statement that effectively induced the other partner to enter into the BFA.

If, during the negotiations stage, one party to a BFA has the intention of defrauding or misrepresenting the other party, for example by hiding assets, or displays recklessness to the possibility of being fraudulent, a BFA can be disregarded and set aside.

Change of circumstances in relation to children

Any circumstantial changes relating to the best interest of the child or children that the Court regards as “material”, such as wellbeing, child development and health are paramount when the Court considers setting aside a BFA. Put simply, the Family Court considers the interests of the children paramount, including in preference to the rights of their parents. If the Family Court finds enforcing a BFA may result in hardship on the party looking after the child if the BFA is carried out, the BFA will be set aside or varied to protect that child or children’s interest. This involves weighing the hardship (that will be suffered if the BFA is enforced) against the material change in the circumstances of the child.

For instance, when the BFA was entered into, the child may have originally lived with the mother, but later moved to live with the father. This might form grounds for the Court to set aside the BFA.

Otherwise, if the child becomes disabled or sick requiring expensive medical treatment, the BFA may be set aside if it runs contrary to the interests of the child.

Fraud against 3rd parties (like creditors)

Any agreement that is entered into with the intention of defrauding a third party, for example a creditor, may be set aside by a Court. A BFA cannot be used as a tool to strip potential assets prior to bankruptcy.

For example, if a husband transfers all of his assets to his wife pursuant to a BFA just prior to bankruptcy in circumstances where it is alleged the parties have separated, the trustee in bankruptcy and/ or the Family Court may investigate and set aside the BFA.

Uncertainty and incompleteness

If the agreement is drafted in such a way that it cannot be fully understood by the parties or it’s just generally too ambiguous, the Court may find that the BFA is invalid and can set it aside. The Court may also do this if the BFA doesn’t address an essential term. When drafting a BFA, have a lawyer cross the ‘T’s and dot the ‘I’s so that it doesn’t get set aside.

Impracticability

This involves a situation where it would make no sense to enforce the BFA. It would be unreasonable to enforce the agreement and so a Court will have it set aside.

Unconscionable Conduct, Duress and Undue Influence

They arise when one partner places too much unwarranted pressure on the other partner to take part in a BFA. Violent threats, intimidation and bullying are common examples of undue influence and duress that may force someone to participate in a BFA.
Unconscionable conduct is akin to using someone’s weakness to your benefit. It occurs if one partner unfairly takes advantage of some “special disadvantage” of the other partner. This disadvantage can’t just be a difference in bargaining power; it needs to include other elements like language, education, level of literacy, intoxication, mental disorder, physical ailment, age etc.

Since both parties should be independently getting legal advice before they enter into a BFA, it might be tricky proving undue influence or duress since normally two independent lawyers are present for it to have been validly created.

Splitting Orders and ‘unsplittable interests’

The Family Law Superannuation Splitting provisions provide a mechanism whereby a parties superannuation interests may be ‘split’ between spouses, and this may be incorporated into a BFA.

It will not, however, be possible to split a superannuation account with very little money. Accounts holding less than $5,000, and those that receive less than $2,000 annually fall into the ‘unsplittable’ category under the Family Law Super Regulations. Certain other types of interest have been deemed unsplittable.

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