Financial Agreements

Binding Financial Agreements in Australia

TGB's Jane Miller analyses an important case that challenged the validity of legislation for Binding Financial Agreements in Australia.

TGB’s Jane Miller analyses an important case that challenged the validity of legislation for Binding Financial Agreements in Australia.

The Full Court of the Family Court recently upheld the validity of legislation which was passed in 2009 to strengthen the binding nature of pre-nuptial style agreements. In the case of Wallace & Stelzer the husband sought a declaration from the Court that the pre-nuptial agreement (known as a Binding Financial Agreement, or “BFA”) he signed with his former wife in 2005 was invalid.  However, in its recent judgment the Full Court found in favour of his former wife, and confirmed that the BFA was indeed binding. The decision resulted in a cash settlement to the wife of more than $3,000,000.

The case is significant to the plethora of attempted Court challenges to the validity of pre-nuptial agreements which have followed since the introduction of laws enabling BFAs in 2000. Since the commencement of that BFA legislation, we at Tindall Gask Bentley Lawyers have fielded hundreds of enquiries from couples seeking to enter a contract for the protection of their assets should their impending marriage end in divorce years later.  What these couples are in fact seeking is certainty.  They seek certainty an order to remove the doubt, interference, burden and costs which can come from protracted litigation at the end of a marriage.

Whilst couples ultimately seek certainty, the laws around the validity of BFAs have been anything but certain. The 2000 legislation, and subsequent amendments, spell out the requirements couples must follow to enter a BFA. This includes the need for each party to provide full disclosure to the other, and for each party to obtain independent legal advice about the BFA.  Although this may sound clear cut, there have been many instances where the legislation has not been strictly complied with.

BFAs are particularly popular among couples who had previously failed marriages, as was the case in Wallace & Stelzer.  Mr Wallace came into his relationship with Ms Stelzer with significant assets, although he had recently separated from his first wife.  In late 2005, only one week before their wedding date, Mr Wallace and Ms Stelzer entered into a BFA which set out what assets they would each be entitled to in the event their marriage ended.  The parties separated just over 18 months later, and Ms Stelzer sought her entitlement from Mr Wallace under the BFA of over $3,000,000.

In mid-2007, within months of their separation, Mr Wallace commenced proceedings in the Family Court for a declaration that the BFA was not binding.  He tried to argue that the BFA was flawed as the lawyers for the parties had not followed the strict requirements set out in the legislation for the preparation of the BFA. Whilst the matter was in the Court system awaiting determination, a significant decision was handed down by the Court in another matter in 2008, known as Black v Black.

In Black v Black, the Court ruled that the BFA in that matter was invalid as it did not strictly comply with the requirements in the BFA legislation.  This outcome risked the validity of thousands of BFAs which had been prepared between 2000 and 2009.  Whilst this appeared to be good news for Mr Wallace who no longer wanted to be bound by his BFA with Ms Stelzer, the federal government immediately enacted new legislation in 2009, which came into operation in January 2010.  The effect of the new legislation was to enable BFAs to be considered valid and binding, even if there was not necessarily strict compliance with the requirements set out in the legislation.  The new legislation applied retrospectively, as well as for future BFAs.

This was not pleasing news for Mr Wallace, who argued before the Full Court of the Family Court that the new legislation was flawed in its construction and constitutional validity.  Despite his best attempts to invalidate his own BFA and to be relieved of his obligation to pay the settlement sum to Ms Stelzer, the Full Court as of last week confirmed that the new legislation is indeed valid and constitutionally sound. It can also be validly applied retrospectively to those agreements signed before 2009.

As a result, the thousands of BFAs entered in to by couples between 2000 and 2009 can still be considered valid, even if they do not strictly comply with the legislation.  Of course, each situation is unique, and whether a BFA will ultimately be upheld will be a matter of assessing the individual case against the new legislation.  It is always wise to receive timely and thorough legal advice about such matters.  What these recent cases really highlight is that one cannot necessarily assume a BFA is or isn’t valid, and sometimes many millions of dollars can hang on the outcome of the BFA!

And to further prove that the only certainty in life is uncertainly, we now await to see whether Mr Wallace will attempt to overturn the Full Court’s decision in an appeal to the High Court of Australia.

Click here to read the full judgment.

TGB is South Australia’s largest family law firm. For advice about agreements or any other divorce matter, contact your nearest TGB location