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  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.