Adame & Adame [2014] FCCA 42 | Binding Financial Agreement

Posted 4th June 2014 by Dirk Klicker

Binding financial agreement set aside

by Dirk Klicker

I am often asked, “Are binding financial agreements 100% airtight?” That question is inadequate as there are a number of grounds upon which the Family Court may set aside a binding financial agreement or “BFA” as they are often called. So, in that sense, it may be said that BFAs are not ‘100% airtight’.

The proper question is whether any of the grounds upon which the Family Court may rely to set aside the BFA apply in any particular case. The answer to that question will of course vary on a case by case basis.

The case of Adame & Adame illustrates some of the pitfalls associated with using a binding financial agreement or “BFA”.

Adame highlights that parties and legal practitioners involved cannot take any short cuts whatsoever and that it is imperative that the highest calibre legal representation is obtained for both proposed parties to the BFA.

The parties commenced living together in about 1993, married in 1995 and separated in 2007.

{Although this case concerned a married couple, financial agreements apply in relation to parties who propose to live or are living in a de facto relationship.}

The parties signed their BFA on 19 January 2011. The BFA involved here was a ‘post-nuptial’ BFA, being signed by the parties after the date of separation, as opposed to a ‘pre-nuptial’ BFA. However, the principles of the case will apply to both pre- and post- nuptial BFAs.

The wife commenced proceedings to seek to set aside the BFA on 14 February 2013.

The final hearing was held on 11 July 2013 with judgement delivered on 16 January 2014.

Of note is the huge delay involved for the parties. The BFA, which is supposed to be a ‘simple’ means of finalising the parties’ financial affairs, has led to the parties being involved in protracted legal proceedings and ongoing stress and expense.

With the benefit of hindsight, if I had been advising the parties in relation to the BFA, I would have strongly recommended that the parties use a Form 11 Application for Consent Orders instead of a BFA. I accept that there may have been other reasons, not canvassed in the judgement, which led the parties to opt for a BFA.

In a relatively brief judgement, the Court set aside the BFA (without too many problems at all) on the following grounds:

  • The husband failed to disclose assets that he owned in the USA. The husband sent an e-mail to his solicitor stating that, “At this stage, I would rather not disclose that property. Things in the USA work a little different. That here I’ve spoken to a solicitor before I purchased the other property. All is okay, don’t worry. Please make amendments so I can forward to [Mr F] f*** ha, ha, ha. Bye, banana…” The husband’s material failure of disclosure alone was sufficient to doom the BFA to the graveyard. The judgement provides some commentary on the requirements in relation to disclosure, which are noteworthy. With the benefit of hindsight, I have to question on what basis that husband proposed to defend the BFA and put the wife through the cost, stress and delay. I would anticipate that a cost order would have been made against the husband in favour of the wife, which is not apparent from the Judgement, but may have come later down the track.
  • The Trial Judge found that the husband engaged in conduct that amounted to duress including but not limited to advising the wife that the BFA was necessary to protect the family home from potential creditors, arranging the solicitors for the wife to attend upon and taking the wife to meetings with her solicitor. The Court considered a range of other factors, which are of note.
  • The wife failed to receive independent legal advice.  This is the most surprising ground of all. In summary, the wife’s solicitor materially failed to perform his duties and obligations in signing the certificate of independent legal advice. This sort of finding has serious implications because there is no possible way for the husband’s solicitor to have known of these deficiencies at the time. The wife said that her solicitor did not explain the nature, advantagse or disadvantages of the BFA.  The solicitor not surprisingly was unable to recall the exact details of the advice that he had provided to the wife.  Indeed, the solicitor went further and gave evidence that he thought he was simply a witness to the wife’s signature. The wife’s solicitor provided no letter of advice to the wife. The question that seems to be raised by this case is whether in the same circumstances there was any onus on the husband’s solicitor to ensure proper advice had been provided to the wife and how the husband’s solicitor was to discharge that onus if any. This really raises the question of whether you can have binding BFA at all, if the disadvantaged party’s solicitor simply fails to provide all the requisite advice to their client. Is the wife’s solicitor in so failing to perform their obligation exposed to any claim by the husband? The answers to these questions require a separate post.

After setting aside the BFA the Court listed the case for further direction on 20 February 2014. This means that unless the parties are able to settle their case by agreement, they will now have to proceed to a final hearing in relation to the division of the assets and liabilities, which on balance may take a further period of up to 2 years, not including the waiting time for the final judgement. Hopefully, the Court would provide the parties with some priority given the time elapsed since separation, but there is no guarantee that they will get priority from the Court, which will depend on their conduct of the case going forward.

That is, once the BFA has been set aside, the parties are now at liberty to proceed with their property settlement. There is no doubt that if the parties had not had a BFA, and had rather had a final hearing for property settlement after separation, their matter would have been resolved in about 2009/2010 and not still be ongoing. In summary, in this case the BFA proved to more trouble than it is was worth.

You might conclude that from the above negative assessment, that BFAs are too dangerous or risky. However, that is not correct. Binding financial agreements have their part to play in family law. They are indeed provided for by the relevant legislation. However, it is paramount that both parties obtain advice from an experienced family law practitioner to avoid the sort of problems that arose in Adame.