A Binding Financial Agreement (‘BFA’) is a contract which can be made at any time before, during or after a de-facto relationship or marriage between two partners. BFAs made before marriage are colloquially referred to as ‘pre-nups’.
A BFA sets outs how the parties’ assets, liabilities, financial resources and superannuation are to be divided in the event of final separation.
There are stringent legal requirements for BFAs to be legally enforceable, as they effectively oust the Court’s jurisdiction under the Family Law Act 1975 (the ‘Family Law Act’) to divide the property between two parties after final separation.
One such requirement under the Family Law Act is that each party, before signing the BFA, must be provided with independent legal advice. If this requirement is not properly met, the BFA may be set aside.
Whether each party had received independent legal advice before signing a BFA was the central question asked in the recent case of Bachman & Donohoe .
Ms Bachman and Mr Donohoe were in a de-facto relationship for 4 to 5 years. Sometime during this period, the pair agreed that Ms Bachman would transfer to Mr Donohoe a half share in her property for $2,500,000. The parties engaged a solicitor referred to as Ms D to assist with the transfer, which occurred on 10 March 2016. Ms D was already known to both parties, having attended social events with them. Ms D also owned part of a boat with the parties.
Shortly after the transfer of property, Ms D prepared a BFA for the parties. The BFA was signed on 22 June 2016.
In October 2019, the parties separated on a final basis and Mr Donohoe sought to rely on the terms of the BFA, however, Ms Bachman argued that the BFA was not enforceable as the parties did not receive truly independent legal advice before signing the BFA.
For a BFA to be enforceable, the agreement must comply with section 90UJ(1)(b) of the Family Law Act, which requires that:
‘before signing the agreement, each spouse party [is] provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement…’
Ms Bachman argued that Ms D did not provide her with independent legal advice and as such, the BFA was not enforceable. Ms D had provided legal advice to both parties during the transfer of Ms Bachman’s property and refinance of the related mortgage. Additionally, Ms D drafted the terms of the BFA almost exclusively in conjunction with both Ms Bachman and Mr Donohue.
Merely 5 days prior to signing the BFA, Ms D referred Mr Donohoe to another solicitor, Mrs B, to obtain independent legal advice, while Ms D was to provide advice to Ms Bachman. At this point in time, Ms D claims that she was exclusively providing independent legal advice to Ms Bachman. However, her emails at the time were predominantly addressed to both Ms Bachman and Mr Donohoe and she had discussed the terms of the BFA during meetings with both parties present.
Ms Bachman commenced proceedings in the Federal Circuit and Family Court to have the BFA set aside. Judge Rees found that Ms D had in fact been acting for both parties when drafting the terms of the BFA and that she was therefore unable to provide truly independent legal advice to Ms Bachman.
Judge Rees also found that at no stage had Ms Bachman provided Ms D written consent to act on her behalf, nor had Ms D provided Ms Bachman with any advice during the development of the BFA that Mr Donohoe was not also privy to.
The BFA was duly set aside due to non-compliance with the Family Law Act.
BFAs are highly technical documents which Courts are not hesitant to overturn should they fail to comply with the Family Law Act, or where it is just and equitable to do so in the circumstances. This case highlights the importance of ensuring truly independent legal advice is obtained, even during the initial stages of drafting a BFA. It is also important that such advice is obtained from a solicitor with an in-depth knowledge of family law so that the quality of advice also meets the standard required by the Family Law Act.
*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*
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