Articles

12th Oct, 2007

Enforcing Binding Financial Agreements
by Alexis Vaughan

Part VIIIA of the Family Law Act, introduced in December 2000, provides for Financial Agreements to be made in 3 circumstances:

between parties in contemplation of marriage;
between married couples; and
between divorced couples.

Binding Financial Agreements tend to allow parties to exercise more control over their property and financial matters. This is because Binding Financial Agreements do not require the approval of, or registration with, the Family Court. Provided the formal requirements of section 90G of the Family Law Act are complied with, and there is no ground under Section 90K to set the agreement aside, a Financial Agreement will bind the parties.

However, it is a common misconception that Binding Financial Agreements will automatically have the force and effect of an order of the Family Court. This article will attempt to work through the legislation and give a clear picture of the enforceability of Binding Financial Agreements.

Section 90G of the Act provides that a financial agreement is binding provided the formalities set out in that section are complied with. Section 90G(2) states that a Court may make any order for the enforcement of a financial agreement that is binding on the parties as it thinks necessary.

Section 90K then sets out the grounds under which the Court may set aside a financial agreement. These circumstances include where the agreement is obtained by fraud, is void, voidable or unenforceable, where it would be impracticable to carry out the agreement, where the agreement would cause hardship to one party, or where a party to the agreement has engaged in unconscionable conduct.

Section 90KA then basically explains that the validity, enforceability and effect of a financial agreement shall be determined by the Court in accordance with the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts. The most important subsection of section 90KA is (c), which states that the Court may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the Court.

Rule 20.01 of the Family Law Rules 2004 defines an obligation to pay money under a financial agreement as an enforceable obligation. However, Rule 20.02 also needs to be read. It provides that if a party seeks to enforce an agreement they must first obtain an order under section 87 of the Act, or under section 90KA(c) of the Act.

The issue tends to become more important where Binding Financial Agreements are used as substitutes for final property orders. The economically inferior party, usually the wife, will have a greater interest in ensuring compliance with the terms of the agreement. What neither party will be expecting or wanting is the commencement of litigation prior to being able to enforce the agreement, but this is what is required by Rule 20.02 and section 90KA(c).

Section 90KA is strangely worded and seems to presuppose that a question arises which in reality, would only arise if an application were before the Court, asserting that the agreement was invalid, unenforceable or ineffective. It is arguable, therefore, that section 90KA is not intended to be a barrier to enforcement unless a question as to the enforceability of the agreement arises, and that question can only arise upon an application having been made pursuant to section 90K itself.

Therefore the most important issue is how legal practitioners are to advise and draft agreements in such a way so as to ensure that the agreement can and will be readily enforced.

This article is a brief summary of the law relating to Binding Financial Agreements and is by no means a comprehensive piece of advice relating to Binding Financial Agreements.