binding financial agreement challenged in court

Challenging a Binding Financial Agreement in court

There has been a lot of debate lately about how hard or easy it is to challenge a binding financial agreement (BFA) in court.  BFAs made between married or de facto spouses and can be made before moving in/marriage (“prenups“) or during the relationship post-marriage/moving in.

Just because it may seem unfair to enforce the BFA does not make it on its own a sufficient reason to set aside a BFA.  The laws of contract apply to BFA’s. Provided they are made at “arm’s length” and legally made, they should be upheld and are enforceable.

Q. If the spouses already have a Binding Financial Agreement but it appears during the rocky times of the relationship that it is unfair, and begin negotiating for a new one – is the old BFA abandoned?

A. The short answer: no, not until it is terminated in accordance with the Family Law Act (either terminated by another legal BFA that the spouses enter, or by court order)

This was clarified in the recent case of Johanson & Johanson [2018] FamCA 355 (23 May 2018).

Brief summary of the case of Johanson

  • Husband sought a declaration that the parties had, by their conduct, abandoned a BFA signed 4 years prior;
  • Wife sought a declaration that the BFA was valid, binding and enforceable on both parties;
  • The Husband had stopped paying spousal maintenance in March 2017, and owed approximately $120,000 plus interest to the Wife;
  • The Court upheld the BFA as enforceable.

Facts of the case of Johanson

  • Parties married in 1989, and separated in 2013, with three adult children;
  • Parties entered into a BFA in January 2014 (a post-separation BFA), which provided for:
    • Adjustment in property interests
    • Spousal maintenance of approximately $11,000 per month
    • The Husband to make payments for a life insurance policy worth at least $1mil
  • In November 2016, the Husband stopped paying;
  • In Jan 2017, he wrote the wife’s solicitors seeking to “vary the terms of the current Financial Agreement”, and sought disclosure from the Wife. He alleged the proposed new/replacement BFA would be “fair and reasonable to all parties” (as he claimed the one they signed was unfair);
  • In March 2017, he stopped paying spousal maintenance;
  • In July 2017, the Wife took him to court seeking enforcement of the current BFA and declaration that it was valid and insisted that it had to be complied with;
  • In response the Husband sought orders from the Court to set aside the BFA claiming it was not valid/should not be enforced;
  • In October 2017, the parties attended mediation. Both parties negotiated for a new BFA, although no agreement was reached;
  • In December 2017, the parties began again negotiating for a new BFA. The Husband argues an agreement was made in January 2018, with variations discussed thereafter. The Wife says no agreement was made- only discussions- and negotiations only continued until she withdrew in March 2018;
  • The Husband alleged that as an “agreement” was reached in January, the parties had abandoned the previous BFA.  But the Court did not side with him and the original BFA was upheld to be enforced.

Moral of the case:

The only ways to get a BFA set aside (made invalid) is to either:

  • obtain a court order to show that the BFA is invalid under a limited criteria (which did not work for the Husband in the case of Johanson); OR
  • enter into a new one which also terminates the current BFA (this option requires a completely new agreement with all formalities and independent solicitor certificates and cannot be done simply by negotiations and verbal communications).

When in doubt- get legal advice from an experienced family lawyer– at the earliest opportunity.

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