After a relationship breakdown, a financial agreement may seem like something you can simply download, fill in and sign, particularly when you and your partner agree about your finances. However, these agreements have strict legal requirements, and a DIY approach can leave you unprotected if the agreement is later challenged or found to be unenforceable.

The courts have reaffirmed the importance of seeking independent legal advice and assistance from an experienced family lawyer regarding the execution of financial agreements or other property arrangements when planning for you and your family. The Family Law Act 1975 (Cth) sets out very strict requirements for a financial agreement to be valid and enforceable, and it is often the case that informal agreements and agreements executed overseas will not be recognised by Australian courts.

A financial agreement – when executed correctly – can allow for certainty, trust, and peace of mind in a relationship. If you are wanting to enter into a financial agreement with your partner, or to understand if your current agreement is valid, it is crucial that you take appropriate caution and seek suitable legal advice from a family lawyer.

What is a Financial Agreement (BFA)?

A financial agreement is a legally binding document which sets out what would happen to the couple’s finances and property should the relationship break down, resulting in separation or divorce. It allows a couple to plan their future rights and responsibilities, before entering a marriage or even after, in the event of a substantial financial change. A financial agreement is not lodged with a court, but rather acts as a private contract between the parties.

Importantly, a financial agreement can protect assets including cash, property, superannuation or inheritances and are predominantly used for setting out the financial arrangements of the couple. However, a financial agreement does not cover child custody arrangements, nor child support payments. A more extensive discussion of which matters can be dealt with in a financial agreement can be found in our previous blog article about preparing, obtaining and setting aside Prenuptial Agreements.

Financial agreements can be set aside by the Court under section 90K of the Family Law Act (for married couples) or the equivalent section 90UM (for de facto couples). The grounds available to the Court include:

• Fraud, including where a party has failed to disclose their true financial position (a material matter) at the time the agreement was made.
• A party entered into the agreement for the purpose of defrauding or defeating a creditor, or with reckless disregard for a creditor’s interests.
• The agreement is void, voidable or otherwise unenforceable — for example, because it is uncertain in its terms or fails as a matter of ordinary contract law.
• It has become impracticable for the agreement, or part of it, to be carried out because of circumstances that have arisen since it was made.
• A material change in circumstances relating to the care, welfare or development of a child of the relationship has occurred since the agreement was made, such that the child — or a party with caring responsibility for the child — would suffer hardship if the agreement is not set aside.

• Additionally, as discussed in a previous blog article, the High Court will not enforce any financial agreements which have been entered into arising from unconscionable conduct, especially where this conduct is a consequence of a significant power imbalance between the parties – as illustrated by the High Court’s decision in Thorne v Kennedy [2017] HCA 49.

The Family Law Act 1975 (Cth)

The Family Law Act 1975 (Cth) is the legislation which governs financial agreements. It allows parties to enter into these agreements before or during a marriage, or after a divorce. Under this Act, a financial agreement must be in writing, have been signed by both parties, and make specific reference to the section of the Act it is made under.

Case: Akhtar & Gaber (No. 2) [2021] FamCAFC 28

In this case, a couple had signed a marriage agreement overseas. When they separated, the wife argued the agreement should still apply. The Court disagreed and dismissed her appeal, because the agreement didn’t meet the strict requirements of Australia’s Family Law Act.

This meant the agreement was invalid in Australia, even though it may have been binding in the country where it was signed. As a result, the couple’s property was instead divided under s 79 of the Family Law Act 1975 (Cth), the normal process that applies when there’s no valid financial agreement in place.

Case: Dragomirov & Dragomirov [2024] FedCFamC1A 187

A more recent decision of the Full Court of the Federal Circuit and Family Court of Australia (Division 1), Dragomirov & Dragomirov [2024] FedCFamC1A 187, underscores how closely the quality of independent legal advice is scrutinised under s 90G(1)(b) of the Family Law Act. On appeal, the husband argued that the wife’s legal advice prior to signing the financial agreement was inadequate because it did not address what she might have achieved had her entitlements instead been assessed under s 79. The Full Court agreed that the advice fell short of what the section requires, but ultimately exercised its discretion to uphold the agreement notwithstanding that deficiency.

The case is a useful reminder that solicitors advising on financial agreements should give clients case-specific advice, including a comparison against their likely entitlement under a s 79 property settlement, rather than a general explanation of the agreement’s effect.

Why obtain our legal assistance regarding your Binding Financial Agreement?

As demonstrated in Akhtar & Gaber (No. 2) and Dragomirov & Dragomirov, it is very important that your BFA meets the requirements set out in the Family Law Act. BFAs which are incorrectly drafted may be deemed invalid or set aside. Therefore, engaging an experienced solicitor to assist in this process is critical.

Additionally, for a financial agreement to be binding, before it can be signed by both parties:

• Each party must have received independent legal advice regarding the effect of the agreement on the rights of that party and the advantages and disadvantages of the agreement, at the time that the advice was provided to the party,
• Each party must have received a signed statement from a legal practitioner as authority that this advice has been provided, and
• Each party must have received a copy of the equivalent signed statement of their spouse or intended spouse.

If you need further advice or assistance regarding BFAs or other family law matters, please contact Etheringtons Solicitors in North Sydney on (02) 9963 9800 or via our contact page. Our highly experienced family lawyers are ready to assist.