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But What Does It Mean? Inter­pret­ing Bind­ing Finan­cial Agreements

Par­ties gen­er­al­ly enter into Bind­ing Finan­cial Agree­ments at the begin­ning of a rela­tion­ship, to pro­tect the assets they bring into the rela­tion­ship, and to gov­ern how assets acquired after the com­mence­ment of the rela­tion­ship are to be divid­ed, in the event the rela­tion­ship breaks down.

While these Agree­ments are sup­posed to make sep­a­ra­tion less acri­mo­nious and avoid lit­i­ga­tion, dif­fi­cul­ties often arise where the mean­ing of the Agree­ment is not clear. 

The recent case of War­rick & Mia [2018] FAMCA426 high­lights the need to be pre­cise in draft­ing Agree­ments, par­tic­u­lar­ly in respect to claus­es gov­ern­ing divi­sion of property.

In War­rick & Mia, the par­ties entered into a Bind­ing Finan­cial Agree­ment short­ly after their mar­riage in 2007. Whilst ini­tial­ly the hus­band sought to set aside the Bind­ing Finan­cial Agree­ment, the par­ties ulti­mate­ly agreed that the issue for deter­mi­na­tion by the Court was the enforce­ment, and by exten­sion the inter­pre­ta­tion, of clause 3(d) of that Finan­cial Agree­ment. This clause gov­erned the way in which prop­er­ty pur­chased joint­ly by the par­ties, after the mar­riage, was to be divid­ed in the event of a break­down of their relationship.

The dis­put­ed clause read the assets and per­son­al effect [sic] which are held in both par­ties’ names acquired after the mar­riage shall be prop­er­ty of both par­ties and should be divid­ed between the par­ties on a con­tri­bu­tion basis.” The dis­pute cen­tred on the def­i­n­i­tion of con­tri­bu­tion basis.”

The wife con­tend­ed that con­tri­bu­tions should refer specif­i­cal­ly to finan­cial con­tri­bu­tions to the pur­chase of the res­i­den­tial prop­er­ty in which the par­ties resided dur­ing the rela­tion­ship. The hus­band, for his part, con­tend­ed that con­tri­bu­tions should refer to the finan­cial, non-finan­cial and home­mak­er con­tri­bu­tions referred to in sec­tion 79(4) of the Fam­i­ly Law Act.

The Court, refer­ring to cas­es in respect to inter­pre­ta­tion of con­tracts and deeds, ulti­mate­ly held that this par­tic­u­lar clause was unen­force­able because the oper­a­tive terms were unclear. His Hon­our could not make a find­ing in one way or anoth­er as to how the par­ties intend­ed to have this clause inter­pret­ed as at the date of enter­ing into the Agreement. 

Accord­ing­ly, and where par­ties had not made a sub­mis­sion about sev­er­ing that par­tic­u­lar clause and oth­er­wise enforc­ing the bal­ance of the Agree­ment, the Court, in an unusu­al step, set aside the entire­ty of the 2007 Agree­ment on the Court’s own motion. 

War­rick & Mia high­lights the need to ensure Bind­ing Finan­cial Agree­ments are draft­ed with clar­i­ty and pre­ci­sion, such that the oper­a­tive parts of the Agree­ment are not left open to inter­pre­ta­tion. As can be seen by this case, even if par­ties are in dis­pute about only a small part of the Finan­cial Agree­ment, this may be suf­fi­cient for the Court to set aside the entire­ty of the Finan­cial Agreement. 

In the event that a Finan­cial Agree­ment is set aside, the prop­er­ty set­tle­ment between the par­ties will either then be as nego­ti­at­ed between the par­ties, or as deter­mined by the Court under the Fam­i­ly Law Act. this may well mean that par­ties are required to engage in lit­i­ga­tion which is more exten­sive than if they had not had a Bind­ing Finan­cial Agreement. 

Obtain­ing expert rep­re­sen­ta­tion when enter­ing into a Bind­ing Finan­cial Agree­ment is cru­cial in avoid­ing pit­falls of draft­ing. Should you have ques­tions about the inter­pre­ta­tion of your Finan­cial Agree­ment, or wish to obtain advice about enter­ing into a Finan­cial Agree­ment with a cur­rent or for­mer part­ner, please con­tact the accred­it­ed spe­cial­ists in Fam­i­ly Law at Swaab +61 2 9233 5544.