Financial Agreements: In what Circumstances Can They Be Set Aside by a Court?

Financial Agreements: In what circumstances can they be set aside by a court?

Financial Agreements under the Family Law Act 1975 have become a popular and somewhat convenient method of settling property matters between the parties to a marriage or a de facto relationship. This is in large part because by entering into financial agreement, the parties can circumvent the need to go to Court in order to separate their financial affairs.

What is a financial agreement?

To be recognised as a financial agreement under the Family Law Act, an agreement generally needs to have the following requirement:

• It must be a valid agreement under contract law in that it must be in writing, signed by the parties and signify an intention to create legal relations;
• It must set out who the parties to the agreement are, for instance the names of the spouses or de facto partners or the names of the parties to a formal marriage or de facto relationship;
• If the agreement is made in contemplation of a marriage or de facto relationship, that marriage or de facto relationship will need to take place before the agreement has effect, and when that agreement does come into effect the parties must have the same relationship status at the time of the agreement;
• It must deal with financial matters, for instance how the parties’ property or financial resources are to be dealt with, or matters regarding the maintenance of a party if the marriage or de facto relationship breaks down;
• The parties to the financial agreement must not have entered into a previous financial agreement under the Family Law Act;
• The agreement must specifically state which section of the Family Law Act that it is made under, for instance Section 90B, Section 90C, Section 90D, Section 90UB, Section UC, or Section 90UD.
• If a document purports to be a financial agreement but does not fulfill the above requirements, unfortunately it is not likely to hold up as a financial agreement in Court.

What might make a financial agreement invalid?

It is notable that a financial agreement has been considered as essentially a contract under the Family Law Act. If an agreement is deficient as a stand-alone contract, it is not going to be held up as a valid financial agreement by the Court. There are several elements that make a contract valid which apply to financial agreements. There are also several aspects of a situation which will make a contract invalid. These include:-

Duress

If a person has forced another person into a contract by duress, the Court can set it aside. Examples of duress are if one person threatened the other person verbally or physically or actually subjected them to verbal or physical threats or assaults in order to force them into the contract.

Undue Influence

If one party has a greater bargaining power or power base and use that greater power to pressure the other party into entering the contract, it may be set aside due to undue influence. Usually, undue influence can be established if the weaker party was being over borne by the conduct of the stronger party. Sometimes it is merely the relationship between the two people that will create a presumption of undue influence, for example between a parent and child or a solicitor and client. However, it is unlikely that any financial agreements, if they are prepared in accordance with the requirements of the Family Law Act, will be set aside due to undue influence as the formalities set out by the Act require that each party will need to receive independent legal advice regarding the terms of the contract. The receipt of independent legal advice will rebut any presumption of undue influence.

Unconscionable Conduct

If one party takes unfair advantage of another party when entering the agreement, it can be set aside by the Court. This type of disadvantage is often referred to as a ‘special disadvantage’ and it refers to a situation where one person might have ignorance, inexperience, emotional ties, or a serious financial need which results in them signing the financial agreement despite it being a terrible idea for them. There are several hurdles that need to become overcome if one party seeks to have a Court set aside a financial agreement on the basis of unconscionable conduct – it is not enough to merely say that we are disadvantaged. It needs to be shown that the party was aware of the disadvantage and they specifically took advantage of this and tailored the financial agreement to exploit that special disadvantage.

A Threat Not to Marry

If one party threatens that a marriage will not go ahead unless the other party enters into a financial agreement, this can be grounds for the setting aside of that agreement by a Court.

Misrepresentation

If someone has been induced into entering into an agreement because relevant facts have been misrepresented, a Court may have the power to rescind the contract. It is therefore important that the financial disclosure made in the agreement is accurate.

Mistake

If the parties to the agreement are mistaken about a significant fact, particularly if they are mistaken on the same fact, the agreement can be declared as void by a Court. However this, as with all the other grounds for setting aside a contract, will depend on the circumstances and the facts of the case.

Setting aside a financial agreement

The Family Law Act actually provides grounds for setting aside a Financial Agreement. In Section 90K including that the agreement was obtained by fraud, the agreement is void, voidable or unenforceable; there has been a change in the circumstance; there has been a material change in the circumstance; there has been unconscionable conduct; there are issues surrounding the payment flag on the superannuation interest; or the agreement talks about splitting a superannuation interest that is actually unsplittable. There are also provisions in Section 90UM that set out when a Financial Agreement can be set aside including that it was made in a non-referring state.

Whilst a Financial Agreement is certainly not infallible, if it is generally made in good faith between parties of equal bargaining power, it remains a viable and effective way to finalise property and maintenance matters between the parties to a marriage or a de facto relationship. Interestingly, despite the fact that a financial agreement does not need to be fair, just or equitable as is required if parties proceed to Court by way of an application for consent orders, they are quite a commonplace way to affect a full and final settlement between parties, subject to the situations set out here which might enable a party to have it set aside by a Court.

So are financial agreements worth entering into? It depends on what your particular circumstances are, what the risk is to you, and what you wish to achieve. It is usually less expensive and quicker than applying to court to have your property matters dealt with so it may be worth discussing moving forward with a financial agreement with your lawyer.