Understanding Binding Financial Agreements in Australia and the Case of Thorne v Kennedy

Thinking about a Binding Financial Agreement (BFA)? Whether you're about to get married, starting a new relationship, or navigating a separation, a BFA can help you manage your finances and protect your assets. But how do they work, and what are the benefits and risks? Let's break it down in simple terms.

What is a Binding Financial Agreement (BFA)?

A Binding Financial Agreement (BFA) is a legal contract that outlines how you and your partner will handle financial matters if your relationship breaks down. A financial agreement can be entered into before marriage (a prenuptial agreement), during the relationship, or after separation. Once signed, a BFA is legally binding, just like a court order, as long as certain rules are followed.

A Binding Financial Agreement

Key Benefits of a Binding Financial Agreement

1. Clear Financial Expectations

   A BFA removes any uncertainty about how assets will be divided if the relationship ends. Both parties know where they stand from the start, which can save a lot of stress down the track.

   
   

2. Protecting Your Assets

   If you have assets such as a business, an inheritance, or property you want to keep separate, a BFA can help protect them. It ensures that your wealth, whether built before or during the relationship, remains yours in the event of a separation.

   
   

3. Tailored Solutions

   Unlike the standard rules set by family courts, a BFA lets you and your partner create an arrangement that suits your unique financial situation. You get to decide how to divide things, rather than leaving it to a judge.

   
   

4. Avoiding Court Battles

   With a clear, legally-binding agreement in place, you can avoid expensive and lengthy court proceedings if the relationship ends. No need for lawyers to get involved, unless something goes wrong.

   
   

5. Peace of Mind

   Knowing that your financial interests are secure can give you both confidence and peace of mind. You're both clear on what happens if things don't work out.

Potential Downsides to a BFA

1. It Can Feel Uncomfortable

   Talking about finances, especially in the early stages of a relationship, can feel awkward. Some people might even see it as preparing for failure. While this is a personal choice, it's important to have open conversations about why it makes sense.

   
   

2. It Could Be Unfair

   If one party doesn't fully understand the agreement or feels pressured into signing, the BFA might not be fair. A party could challenge a financial agreement and have it set aside or voided by a court.

   
   

3. It's Not Cheap

   Drafting a legally valid BFA requires expert advice, and both parties must consult separate lawyers. This can be costly, but it's a necessary step to ensure the agreement is legally sound.

   
   

4. It Might Not Adapt Well to Life Changes

   Life circumstances change, whether it's a job loss, a promotion, or children coming into the picture. A BFA might not reflect these shifts, and changing things later can be difficult and expensive.

   
   

5. It Could Be Overturned

   If the BFA isn't properly signed, or if one party didn't get independent legal advice or sufficient advice, it might not be enforceable. Further, in certain circumstances, if a party is placed under duress, or exposed to undue influence or unconscionable conduct, the agreement may be voided, as highlighted in the important High Court of Australia case of Thorne v Kennedy [2017] HCA 49.

Are Binding Financial Agreements Enforceable?

Yes, the vast majority of the time, provided they follow the rules set out in the Family Law Act 1975 and the common law. To make sure a BFA is legally binding, the following should happen:

• Both parties must obtain independent legal advice before signing the agreement regarding the advantages and disadvantages of entering into the agreement and how it will affect their rights.

• The agreement must be written down and signed by both parties.

• It must be entered into voluntarily, with no pressure or coercion.

If these conditions are met, the BFA is usually enforceable. However, if one party didn't understand what they were signing or was forced into it, a court can decide the agreement is invalid.

An AI depiction of a barrister making submissions to a court to void a binding financial agreement.

The Thorne v Kennedy Case: A Key Legal Lesson

In the Thorne v Kennedy case, the High Court confirmed that a BFA may be voided if a party was pressured into signing it or didn't fully understand it. In this case, the finacee' was asked to sign a financial agreement just days before her wedding, without enough time to consider it's full impact and she was placed under pressure due to the approaching wedding. Arrangements were well underway for her wedding and her family were flown into the country. The fiancée came from basic means, whereas the fiancé was a well-off property developer.

The fiancée's lawyer gave her advice not to enter into the agreement. The Primary Judge found that she was placed under undue influence due to six factors:

(i) her lack of financial equality compared to him;

(ii) her lack of permanent status in Australia at the time;

(iii) her reliance on him for all things;

(iv) her emotional connectedness to their relationship and the prospect of motherhood; (v) her emotional preparation for marriage; and

(vi) the "publicness" of her upcoming marriage.

At paragraph 100, the Court stated: "The primary judge concluded that there was no evidence to suggest that there would be any further relationship if the wedding did not take place. If the relationship ended, Ms Thorne 'would have nothing. No job, no visa, no home, no place, no community'."...

The Primary Judge concluded that, in entering the agreement, she had no real choice and was under a special disadvantage, meaning she was subject to undue influence. The Court found that the financial agreement was voidable because one of the parties had engaged in conduct that was, in all the circumstances, unconscionable.

This case shows the importance of proper legal advice and discussion of the circumstances, before a financial agreement can be entered into, and that the agreement must be entered into with free will, full understanding and unaffected by circumstances, which place pressure on a party or that mean the party has no real choice but to enter the agreement.

Key Takeaways

Binding Financial Agreements can offer clear benefits: protecting your assets, avoiding legal battles, and providing financial certainty. But they also come with risks, such as emotional discomfort and the risk of unfairness and being set aside.

To ensure your BFA is valid and enforceable, it's essential that both parties obtain independent legal advice and fully understand the agreement. A well-drafted BFA can protect your interests and save you stress, but it needs to be done right, and the circumstances must be right.

If you're considering a BFA, contact us for a free, 30-minute consultation with one of our experienced family lawyers to guide you through the process.