Binding Financial Agreements (BFAs) are important legal documents that set out how a couple’s assets will be divided if their relationship breaks down. While these agreements are designed to provide certainty and protect both parties’ interests, they aren’t absolutely ironclad. In Australia, there are several grounds on which a BFA can be challenged, with duress and undue influence being among the most common. This article explores whether and how a BFA can be successfully challenged on these grounds.
How Duress and Undue Influence Can Invalidate a BFA
Under Section 90K of the Family Law Act 1975 (Cth), a court may set aside a BFA if it was obtained through duress, undue influence, or unconscionable conduct. These provisions exist to ensure that both parties enter into the agreement freely and with genuine consent.
Duress involves the use of unlawful pressure or threats to force someone to sign an agreement. This could include threats of physical harm, threats to end the relationship immediately before a wedding, or threats relating to immigration status. For duress to be established, the pressure must be significant enough that it effectively deprived the person of their free will.
Undue influence, on the other hand, occurs when one party takes advantage of a position of power or trust to influence the other party to enter into an agreement that they wouldn’t otherwise have signed. This often involves a power imbalance in the relationship, where one party exercises dominance over the other.
What Constitutes Duress in BFA Challenges?
Australian courts have established certain criteria for what constitutes duress in the context of BFAs. The pressure must be illegitimate and substantial enough to overcome the will of a reasonable person. It’s not enough that someone felt pressured; the pressure must be improper and beyond what’s considered acceptable in normal negotiations.
In the landmark case of Thorne v Kennedy [2017] HCA 49, the High Court of Australia set aside a prenuptial agreement because it was signed under duress. The bride, who was in a vulnerable position as a foreigner with limited English and no financial resources, was presented with the agreement just days before the wedding. She was told that if she didn’t sign, the wedding would be called off. The court found this constituted duress.
Similarly, threats to withdraw financial support, especially when the other party is financially dependent, can amount to duress. Timing is also critical – presenting a BFA at the last minute before a significant event (like a wedding) and insisting on immediate signature without allowing time for proper consideration can support a claim of duress.
Establishing Undue Influence in BFA Challenges
Undue influence can be more subtle than duress but equally damaging to the validity of a BFA. It typically involves one party taking advantage of the other’s trust, dependence, or vulnerability. Australian courts recognise both actual and presumed undue influence.
Actual undue influence must be proven with evidence showing that improper pressure was applied. This might include emotional manipulation, isolation from independent advice, or exploiting knowledge of particular vulnerabilities.
Presumed undue influence arises from certain relationships where one party has significant influence over the other, such as where there’s a clear power imbalance due to financial control, age difference, or educational disparities. In these cases, the burden shifts to the dominant party to prove that the agreement was fair and freely entered into.
The case of Saintclaire & Saintclaire [2015] FamCAFC 245 illustrates how undue influence can invalidate a BFA. The court set aside an agreement where a husband with significant financial experience and resources pressured his less financially sophisticated wife into signing an agreement that was overwhelmingly in his favour, without ensuring she received adequate independent advice.
Factors Courts Consider When Assessing Duress or Undue Influence Claims
Timing of the Agreement
The timing of when a BFA is presented and signed is critically important in duress claims. Courts view last-minute agreements with particular scrutiny. In Thorne v Kennedy, the fact that the agreement was presented just days before the wedding was a significant factor in the court’s decision to set it aside.
If a BFA is presented with an unreasonable deadline or at a time when the other party feels they have no choice but to sign (such as after flights for overseas family members have been booked for a wedding), this may support a claim of duress or undue influence.
Independent Legal Advice
Whether both parties received adequate independent legal advice is a crucial consideration. Section 90G of the Family Law Act requires that both parties receive independent legal advice before signing a BFA. However, merely receiving advice isn’t always sufficient if the circumstances suggest the advice couldn’t be properly considered or acted upon.
Courts examine whether the legal advice was genuinely independent and whether the party had sufficient time to consider it. If a party was rushed through the advice process or discouraged from following the recommendations of their binding financial agreement lawyer, this may support a claim of duress or undue influence.
In some cases, courts have found that even where technical compliance with the independent advice requirement existed, the reality was that the affected party had no real choice but to sign, rendering the advice effectively meaningless.
Power Imbalances Between Parties
Significant disparities in power between the parties can support claims of undue influence. These imbalances might arise from differences in financial resources, education, business experience, age, or English language proficiency.
Courts also consider cultural factors and immigration status. In cases involving parties from different countries, where one party’s residency status depends on the relationship, courts recognise the additional vulnerability this creates and the potential for exploitation.
In Sullivan & Sullivan [2011] FamCA 752, the court acknowledged how financial control can create power imbalances that may lead to undue influence, particularly where one party is financially dependent on the other and has limited alternatives.
Content and Fairness of the Agreement
While unfairness alone isn’t grounds to set aside a BFA, the extreme one-sidedness of an agreement can support claims of duress or undue influence. Courts examine whether the terms are so unfavourable to one party that they suggest the agreement wasn’t freely entered into.
In Thorne v Kennedy, the court noted that the agreement was “wholly inadequate” in providing for the wife’s needs, which supported the conclusion that she wouldn’t have signed it without improper pressure.
If a BFA effectively leaves one party with nothing or very little in the event of separation, especially after a long relationship, courts may view this as evidence that the agreement wasn’t freely negotiated.
Preventative Measures to Reduce the Risk of Successful Challenges
Ensuring Proper Timing and Process
To minimise the risk of a BFA being challenged on grounds of duress or undue influence, timing is crucial. Agreements should be negotiated and finalised well in advance of significant events like weddings. Courts look more favourably on agreements where both parties had ample time to consider the terms, seek advice, and negotiate changes.
Ideally, discussions about a BFA should begin months before it needs to be signed. This gives both parties time to fully understand the implications and reduces the appearance of pressure. The negotiation process should be documented, showing that both parties had input into the final agreement and that modifications were made in response to concerns raised.
Avoid presenting BFAs as non-negotiable ultimatums. Instead, approach them as collaborative documents that protect both parties’ interests and can be adjusted to reflect mutual concerns.
Ensuring Genuine Independent Legal Advice
Both parties must receive thorough, independent legal advice from separate solicitors. This advice should be comprehensive, explaining not just what the agreement means but also what rights the party may be giving up by signing it.
Solicitors should certify that they’ve provided advice about the advantages and disadvantages of entering into the agreement. They should also confirm that their client appeared to understand the advice and wasn’t under obvious duress.
To strengthen the agreement’s validity, parties should be encouraged to take time between receiving legal advice and signing the agreement. This demonstrates that they had an opportunity to reflect on the advice and weren’t rushed into a decision.
Creating Fair and Reasonable Terms
While BFAs don’t need to provide an equal division of assets, they should be reasonably fair and take into account changing circumstances over time. Agreements that leave one party with virtually nothing after a long relationship are more likely to be scrutinised by courts.
Consider including clauses that provide for changing circumstances, such as the birth of children, career sacrifices, or significant changes in financial position. These dynamic elements can help demonstrate that the agreement was intended to be fair and reasonable over time.
Transparency is essential during negotiations. Both parties should fully disclose their financial positions, including assets, liabilities, and financial resources. Failure to provide full disclosure can be grounds for setting aside a BFA, independent of duress or undue influence claims.
Notable Australian Case Law on Duress and Undue Influence in BFAs
Thorne v Kennedy [2017]: A Landmark Decision
The Thorne v Kennedy case represents the most significant Australian judgment on duress and undue influence in the context of BFAs. This High Court decision has fundamentally shaped how courts approach these challenges.
Ms Thorne, a 36-year-old Eastern European woman with no substantial assets, met Mr Kennedy, a 67-year-old Australian property developer worth between $18-24 million, on a website for potential brides. After moving to Australia to marry him, she was presented with a prenuptial agreement just days before the wedding. She was told that if she didn’t sign, the wedding would be cancelled.
Despite receiving independent legal advice strongly recommending against signing, Ms Thorne signed both a prenuptial agreement and a post-nuptial agreement. When the relationship ended, she challenged the validity of both agreements.
The High Court unanimously held that the agreements should be set aside due to both undue influence and unconscionable conduct. The Court identified six factors that were particularly significant: the unequal bargaining power, Ms Thorne’s lack of choice, the timing of the agreement, the emotional pressure, Ms Thorne’s lack of permanent residency status, and the content of the agreement being considerably unfair.
Other Significant Cases Shaping Australian Jurisprudence
In Blackmore & Webber [2009] FMCAfam 154, the court set aside a BFA where a husband pressured his wife into signing by threatening to withdraw financial support for their children if she refused. This case established that economic pressure can constitute duress when it exploits financial vulnerability.
The case of Wallace & Stelzer [2013] FamCAFC 199 involved a BFA challenged on grounds including undue influence. The court considered factors such as the husband’s controlling behaviour, the wife’s financial dependence, and her limited understanding of the agreement’s implications. This case highlighted how a pattern of controlling behaviour can contribute to findings of undue influence.
Need Help With Your Binding Financial Agreement?
Binding Financial Agreements are complex legal documents that require careful consideration and proper process to ensure they stand up to potential challenges. Whether you’re looking to create a robust BFA or are concerned about the validity of an existing agreement, seeking professional legal advice is essential.
As a law firm in Australia, my law firm can help you navigate the complexities of BFAs and ensure your agreement is created under circumstances that minimise the risk of successful challenges based on duress or undue influence. Our team offers transparent, fixed fee services for BFAs and related family law matters. Contact our team today by calling 1300 529 888 to discuss your specific situation.