Can You Be Bound To An Agreement Even Though It Doesn't Comply With Legislation?

A Binding Financial Agreement is a document that separating couples can enter into to divide their assets as an alternative to Court Orders. Once entered into, the Agreement overrides the jurisdiction of the Federal Circuit and Family Court of Australia ("The Court") to make property orders.

The Family Law Act 1975 ("the Act") sets out what's required to make a Binding Financial Agreement "binding". This includes the requirement for both parties to obtain independent legal advice as to the "effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement". Legislation also requires the solicitor providing advice to sign a certificate, confirming compliance with the legislation.

When Agreements don't meet every requirement

So, what happens when the specific requirements set out in the Act are not followed? Are you still bound by the terms of the Agreement you have entered into?

The simple answer is yes, you can be bound by the terms of the Agreement even if full and complete compliance with the legislation has not been followed.

Section 90G(1A) of the Act states that if two parties enter into an Agreement, and that Agreement does not fully comply with the requirement set out in the Act, the Court can find the Agreement binding if it's satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement. The party seeking to enforce the Agreement has the responsibility of satisfying the Court.

The Whittle case

In the matter of Whittle, the husband and wife signed a document which was purportedly a Binding Financial Agreement under s90C of the Act.

The Agreement stated that the home was to be transferred to the wife, provided the wife was able to refinance the mortgage into her sole name. Otherwise, each party would retain all of the assets they held in their sole names. The husband was to also provide the wife with a vehicle and maintain that vehicle for three years.

The Agreement signed by the husband and wife contained a clause, stating that "the Parties acknowledge that they have agreed upon a division of all assets, owned or possessed by them as matrimonial property or separate property. The Parties are in possession of all of those assets to which he or she is respectively entitled. Accordingly, neither makes any claim to any assets in the possession of the other."

The Agreement was signed in 2021. In 2023, the wife filed an application with the Court seeking a property settlement. The basis of the wife's case was that neither the husband nor the wife obtained any legal advice as required by the Act, and that failure was critical to the binding nature of the Agreement.

The husband, whilst acknowledging that neither he nor the wife obtained advice from a lawyer, maintained that it would be unjust and inequitable if the Agreement was not found to be binding, as he had fully complied with his obligations under the Agreement. He had transferred the home to the wife and provided her with a motor vehicle as required. The husband had also met 100% of the children's educational expenses as provided for in the Agreement.

The Court's discretion

The Court has a broad discretion and will consider matters on a case-by-case basis. In considering the matter of Whittle, the Court considered the following:

1. the wife initiated the preparation of the Financial Agreement and the parties each then contributed to resolving the final form;
2. there was no evidence of pressure, duress or inducement on either party towards the execution of the Agreement;
3. the husband fully carried out his obligations under the Agreement and therefore the wife received the particular benefits available to her under the Agreement;
4. since making the Agreement, the wife asserted her entitlements under the Agreement, given its binding nature, and as such the parties considered the Agreement to be binding following its execution;
5. the issue of injustice and inequity can far more easily be seen as focused on whether, given the nature and extent of the non-compliance, it would be unjust and inequitable if the Agreement was not binding;
6. the facts and circumstances surrounding the making and performance of the Agreement are relevant, rather than a broader enquiry into the financial circumstances of the parties.

When considering the above, the Court declared the Financial Agreement to be binding. It found that, on the balance of probabilities, it was the intention of the parties to finally settle their financial matters by the Agreement rather than by exercising the jurisdiction of the Court.

While the husband was successful in obtaining an order that the Agreement was binding, despite neither party obtaining the required legal advice, it's important when considering a property settlement, particularly a Binding Financial Agreement, to ensure that full compliance with the legislation is followed as each case will be considered on a case-by-case basis.

Obtaining legal advice on the Agreement is by virtue one of the key elements under the Act to ensure the Agreement is binding and – notwithstanding the outcome in Whittle – one should use that as a cautionary tale and not an excuse to avoid obtaining legal advice in the first instance. The cost of retaining a lawyer to draft your Binding Financial Agreement and to advise you on the same would be far less expensive than litigating in Court about the validity of a non-compliant document.

If you're navigating separation or financial agreements, the right legal advice is essential. Visit our Family Law page or get in touch with our team today to discuss your options.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.