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Setting Aside a Binding Financial Agreement: The Case of Whitford and Whitford
Binding financial agreements (BFAs) between two people in a relationship can be made before, during or even after a de facto relationship or marriage. In the language of popular culture, these agreements are sometimes better known from American TV shows featuring lawyers as ‘pre-nups’ – agreements which state what is to happen to financial and other assets once a couple ends their relationship.
The place of BFAs is recognised in Australia’s Family Law Act (‘the Act’). Under Section 90G of the Act, a BFA is said to be binding on the parties to it if:
- the agreement is signed by all parties;
- before signing the agreement, each party obtained independent legal advice about the effect of the agreement on their rights, and the advantages and disadvantages of the agreement;
- each party obtains a statement by a legal practitioner stating that the independent legal advice was obtained and provides the other party with a copy of the statement;
- the agreement has not been terminated and has not been set aside by a Court.
There are also situations in which the court will set aside a BFA. One of the chief causes for a BFA to be set aside is where a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable. In deciding whether unconscionable conduct has tainted the BFA, the Court gives consideration to the principles of common law and equity as they relate to the enforceability and validity of contracts under Section 90KA of Act.
The most effective way to understand how a party’s unconscionable conduct can invalidate a BFA is to look more closely at an example from the Court, which we’ll do in this article with the case of Whitford v Whitford [2023] FCWA 15 (‘Whitford’).
The details of the case
The grounds upon which a BFA will be set aside were central to this recent case in which a couple who married in 2001 and divorced in January 2015 entered into a financial agreement in December 2014.
The agreement valued the husband’s net assets at $1,109,973 and the wife’s at $59,000, with the asset pool to be divided 95 per cent to the husband and 5 per cent to the wife. The property in which the couple had lived – ‘Farm A’ – which the wife had left in October 2012 when the couple separated, was given a value of $2,217,000 in the financial agreement.
In 2020 the wife discovered the husband had sold Farm A, without her knowledge, in 2015 for $2.6million. He subsequently purchased ‘Farm B’ property for $1.03 million which he moved into with his new wife Ms D, who happened to be the sister of his former wife. As a result his ex-wife commenced proceedings to have the financial agreement set aside on the basis it was not binding under s 90G and additionally should be set aside on s 90K factors.
What did the court find?
Justice Berry found that in the making of the financial agreement, the husband engaged in unconscionable conduct and set the BFA aside.
After finding that the agreement complied with the requirements of s 90G, the finding of unconscionability relied on the s 90K arguments. Specifically, the husband had accepted an offer of $2.6million in September 2014 for the Farm A property prior to the BFA being made. The husband also entered into a contract to purchase the Farm B property in September 2014 for $1 million. The BFA between husband and wife in December 2014 made no reference to the Farm B property. The judgment found that the wife was unaware of these offers or that the husband was intending to sell the Farm A property. Moreover, when the husband signed the BFA, he knew that the value attributed to the Farm A property by a market appraisal of $2.217 million was inaccurate.
Additionally, the value attributed to the farming business in the BFA was $90,000 but the assets involved were subsequently sold at a clearing sale for $457,782 (for plant and equipment) and $47,172 (for sheep), more than five times greater than the value attributed in the financial agreement. The Court was satisfied that when the husband signed the financial agreement, he knew or ought to have known that the value attributed to the farming business of $90,000 was materially inaccurate.
As a result of these findings, the Court found the wife’s claim of unconscionable conduct by the husband was supported. The Court cited evidence that included:
- that the property settlement payment of $50,000 to the wife was dictated by the husband without input from her;
- that the husband knew the wife was in no financial position to commence legal proceedings for a greater settlement;
- that the husband organised and paid for legal advice for the wife in order to expedite the BFA;
- the wife felt powerless and without choice in signing the BFA, and was given no reasonable time to reflect on the legal advice she received;
- the husband was aware of the wife’s psychological vulnerabilities arising in part from her abusive childhood and exploited these vulnerabilities after their separation.
Other factors included the fact the wife’s access to her children was controlled by the husband.
The equitable doctrine of unconscionability requires that an innocent party was at a special disadvantage that seriously affected their ability to make a judgement as to their own best interests. In addition, the other party to the agreement took advantage of that disadvantage despite knowing, or ought to have known, of the special disadvantage.
The Court found that at the time she signed the BFA and in the period since separation, the wife was in a position of special disadvantage and the husband unconscionably took advantage of his position relative to the wife.
The importance of good legal advice in making a binding financial agreement
The case of Whitford highlights the need for seeking, understanding and properly considering expert legal advice before entering into a BFA, such as that offered by our family law specialists at Frigo James Legal. We will also help you make a case if you believe a BFA should be set aside for undue influence or, as we have dealt with in this article, unconscionable dealing.
If anything in this article is relevant to your situation, contact us today for a chat about how we can help you.
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