A Binding Financial Agreement is a written agreement that allows couples to choose how to manage property, superannuation, spousal maintenance and other financial resources in the event of a relationship breakdown. They are an excellent option for couples who are still on amicable terms and wish to have the final say on the division of their assets without involving the court.
A Binding Financial Agreement is like any other contract and is subject to the standard principles of Australian contract law. When formalising an agreement with your partner, it is therefore necessary to ensure you draft in a way that reduces the risk of it being challenged in court proceedings later down the track.
This article will walk you through the importance of preparing precise Financial Agreements and offer some tips to avoid common drafting errors.
Legal consequences of incorporating uncertain terms in a Binding Financial Agreement
According to s90K of the Family Law Court, a court has the power to set aside an Agreement if it is void, voidable or unenforceable. A binding Agreement may be held void for uncertainty if the intention of the parties cannot be determined objectively.
As a general rule, the terms contained in the Agreement must accurately reflect the intention of both parties at the time of the making of the Agreement and be unambiguous. In other words, the meaning to be given to expressions used in the Agreement must be clear and certain. For example, instead of referring to broad terms such as ‘assets’ or ‘property’, parties should attempt to provide as much detail as possible.
In the event of a dispute, a court will apply the ‘objective reasonable bystander’ test to establish the proper construction of a Binding Financial Agreement. This test looks at what a reasonable person would understand by the language in which the parties have expressed their agreement. If the court cannot give meaning to an Agreement whose terms are uncertain, it will either set aside the entire Agreement or sever a portion of it from the remainder of the document.
While a Binding Financial Agreement is in force, neither partner can initiate court proceedings over any matters dealt with in the Agreement. However, once set aside, the door to the Family Court reopens and either party can apply for orders for property settlement. This will likely come at a significant cost and cause further tension between both parties in the dispute.
Warrick & Mia  FAMCA 426 – A case example
A recent case heard in the Family Court of Australia serves as an important reminder of the need to draft the terms of a Financial Agreement with the utmost care and precision.
In Warrick & Mia, the parties entered into a Financial Agreement following their marriage in 2007. The Agreement contained a provision that read in the event of divorce, any jointly owned property acquired by the couple during their marriage was to be divided between them on a ‘contribution basis’. However, the Agreement failed to provide any additional guidance on the definition of ‘contribution basis’.
The couple parted ways in 2013, which later prompted a dispute over the meaning of the term ‘contribution basis’. The husband argued that the term should refer to both financial and non-financial contributions. On the other hand, the wife contended that the contributions referred just to the financial contributions made towards the purchase of their marital home.
Upon close consideration of the facts, the court held that ‘contribution basis’ was an ambiguous term and incapable of definite meaning. This meant that the judge presiding over the case could not determine the parties true intentions. As a result, the court set aside the entire Agreement.
How to avoid unnecessary disputes and litigation
In Warrick v Mia, the court stated that separating couples can avoid a dispute over the meaning of a term in a Financial Agreement by a ‘simple stroke of the pen’. Before signing any Agreement, you should therefore consider the following three tips:
1) Writing in plain English is a great way to reduce the risk of any potential misunderstanding. Where possible, try to avoid including complex words or long-winded sentences in your document.
2) Make use of terms that are defined in the Family Law Act. Often the meaning of these terms is supported by case law or legal principles, which can provide greater certainty on interpretation issues.
3) Clearly define any ambiguous terms or phrases in the Agreement itself. The recitals provide a background or history to the Agreement. You or your partner may wish to add additional recitals to further clarify a factor that might have a bearing on the understanding of the Agreement. For example, additional recitals may include specific details about any assets that you wish to quarantine and why.
RP Emery and Associates have been serving the business community and individuals with professionally drafted, ready-made contract templates since 1990. By using our kits, you can competently meet your legal and contractual requirements without having to pay expensive legal fees. We offer a range of templates to best suit the circumstances of your relationship.
Our Financial Agreement kits are drafted by experienced solicitors to comply with the Family Law Act, Commonwealth, state(s), and independent territory by-laws. So you can rest assured knowing that the framework of your property settlement is both accurate and precise.
Each kit includes comprehensive instructions, a completed sample Agreement and additional sample clauses to help you complete your Financial Agreement.
Here at RP Emery, we are not just a faceless website. Instead, we consider it our job to provide you with the best possible support so you feel empowered to take control of your legal matters. We can help walk you through the process of completing your own Financial Agreement and can facilitate the required independent legal advice for a low fixed fee.