B is for binding financial agreements – A-Z of Family Law

There are two primary ways to formalise a family law property settlement: Court orders or a Binding Financial Agreement (“BFA”). BFAs are outlined at Part VIIIA of the Family Law Act 1975 (Cth) (“the Act”) and can be made before, during, or after a de-facto relationship or marriage. For example, a BFA prior to a relationship is colloquially known as a ‘pre-nup’, thanks to Western media.

BFAs serve a range of purposes but typically outline what happens to a parties’ finances if and when they separate.

BFAs made after a relationship ends are the most common, particularly those under section 90C of the Act (“Financial agreements during marriage”, where parties are separated but not yet divorced). Although BFAs are not intended to be filed in Court, they can be litigated if things go wrong.

Because BFAs are not scrutinised by a court before taking effect (unlike orders), strict compliance with legislative requirements is essential. These requirements involve the provisions of sections 90C, 90DA, and 90G of the Act.

A BFA may be set aside if a consideration under section 90K is enlivened.

The 2024 decision of Dragomirov & Dragomirov by Justice Campton of the Federal Circuit and Family Court of Australia (Division 1) centered upon an appeal about whether the wife received proper independent legal advice prior to signing the BFA. She sought a finding that the BFA was non-binding and unenforceable, presumably to pursue a more favorable outcome through a fresh Application to the Court.

The requirement for independent legal advice to be provided if a BFA is to be binding appears at section 90G(1)(b) of the Act.

At first instance, the Court concluded that the BFA was a valid section 90C agreement and compliant with the Act. However, the Court also concluded that even if this was incorrect, it would be unjust and inequitable for the BFA not to be binding, a decision in favor of the husband.

On appeal, the wife was unsuccessful. Most of her grounds of appeal were dismissed or abandoned. However, interestingly, her first ground of appeal succeeded, i.e. Justice Campton concluded that the required advice under section 90G(1)(b) was not provided.

Specifically, no advice was provided nor were there discussions had about the actual contributions made by the parties, nor of the ‘future needs’ factors under section 75(2) of the Act. As a result, the wife lacked the information necessary to understand what she was giving up by signing the BFA rather than pursuing a court application.

Justice Campton subsequently considered the second conclusion reached at first instance, i.e. that it would otherwise be unjust and inequitable for the BFA to not be binding, in the context of the Act and the evidence.

Importantly, advice was however given to the wife about the steps and process a court would take by way of an application. The wife, knowing this legal background and being aware of the contributions she knew of during the marriage, nonetheless signed the BFA.

Decisions such as Hoult & Hoult [2013] FamCAFC 109 and Abrum & Abrum [2013] FamCA 897 were important in considering the legal approach to be applied to the current circumstances.

Justice Campton ultimately found no error in the primary judge’s alternative conclusion under s 90G(1A) that it was unjust and inequitable for the BFA not to be binding, and that a declaration should be made to that effect notwithstanding the lack of adequate legal advice.

Given that fraudulent conduct was not made out by another ground of appeal (which otherwise failed), the appeal would be dismissed.

A few useful excerpts from the judgment are as follows:

• It is unhelpful to advise a person that a financial agreement might adversely affect his or her rights if those rights are not identified … He or she must have some idea … of his or her present entitlements or rights … with which he or she may compare the provisions of the proposed financial agreement. It is only in that way that there can be actual advice about the effect of the agreement on those present rights [40].
• [T]here is no requirement that the terms of a financial agreement be just and equitable … Parties are perfectly free to enter into a bad bargain by way of a financial agreement [49].
• The nature and extent of non-compliance is an important consideration [63].

The Court has made it clear that the Act’s requirements are unlikely to be satisfied through blanket advice that a party ‘could do better’ through a Court application.

Lawyers must advise their client through:

• Addressing the contributions of each party with specificity according to the Act and the circumstances.
• Discussing the potential future needs of each party with specificity according to the Act and the circumstances
• Discussing what a party is ‘giving up’ by entering the BFA.
• Providing advice about the just and equitable range of outcomes a court could order.