When Having a Child Can be Grounds for Setting Aside a Financial Agreement Between a Couple

Many aspects of modern life are governed by the terms of contracts including, even, marriages and de facto relationships in the form of Binding Financial Agreements (‘BFAs’). These private agreements between couples can be entered into before, during or even after a relationship, and typically set out how property is to be dealt with, as well as what maintenance might be payable by one party to another, if and when the relationship ends. The aim of a BFA is to avoid lengthy, costly and acrimonious court action when a relationship breaks down.
 
But such agreements can later be amended when circumstances change, especially those related to children. Under Sections 90K(1)(d) and 90UM(1)(g) of the Family Law Act 1975 (‘the Act’), the legal grounds for setting aside a BFA due to changes in circumstances relating to children are explained. This article provides more detail on these provisions but if you’re in any doubt or need more information, it’s advisable to contact our expert family law team as soon as possible.

How the Act works when circumstances change

Section 90K(1)(d) of the Act allows a court to set aside a financial agreement if there has been a significant change in circumstances since the agreement was made that relates to a child of the marriage, or a child who was intended to be a child of the marriage. Similarly, section 90UM(1)(g) provides the corresponding provision for de facto relationships.

Where a material change occurs by reason of the care, welfare and development of a child from the relationship, and by reason of that change the child or the parent will suffer hardship if the financial agreement is not set aside, s 90K(1)(d) of the Act gives the court power to set aside a BFA.

The material change in circumstances typically refers to events or developments that were not contemplated by the parties at the time the BFA was executed.

A key aspect of successfully setting aside a BFA, therefore, is that the party seeking to have the BFA changed or set aside must demonstrate 'hardship'. Demonstrating hardship involves presenting evidence of the impact that the change in circumstances has had on the parental carer and/or the children involved, including financial, emotional, or practical difficulties that arise due to the altered circumstances.

The court must carefully assess the specific facts of each case to make a judgement about whether the hardship suffered justifies setting aside the BFA. The test was set out in the case of Fewster & Drake [2016] FamCAFC, where the court said:

‘The concluding words of s 90K(1)(d) are “if the court does not set the agreement aside”. Logically and inevitably those words require the court to undertake some comparison between the position of the child, or the person with caring responsibility, if the agreement remains in place and the position of that child or person if the agreement is set aside. It is only by doing so that the court can place itself in a position to determine whether there will be hardship if the agreement is not set aside.’

An example from the courts

In Frederick & Frederick [2019] FamCAFC 87, the Federal Circuit Court of Australia dismissed an application by the wife to set aside a BFA entered into prior to her marriage (in response to the husband filing an application that the BFA remained valid and binding), after one of the children from the relationship was diagnosed with atypical autism, mild functional/adaptive impairment and pica, requiring specialist health treatment and associated costs. The court found that while the wife and her child had suffered hardship as a result of this material change in circumstances, it nevertheless determined she would not suffer hardship if the BFA were not set aside.

On appeal, however, the Full Court reversed this finding after evidence led them to the determination that under the existing BFA, the value of property available for division between the parties totalled about $100,000 but that if it was set aside, the value was more like $4 million. On this basis, the hardship of the wife and her children was established, the BFA was set aside and the matter became the subject of another hearing to achieve a just and equitable division of assets, taking into account the contributions of the parties and their future needs.

The importance of properly drafted BFAs

The case cited and the provisions of the Act allowing courts to set aside BFAs where hardship is demonstrated by one party mean that it is crucial to draft financial agreements that contemplate possible future developments. The potential for circumstances to change in the care, wellbeing, living arrangements and financial needs of children are not only possible but more than likely.

To come up with an agreement that addresses this likelihood requires foresight, open communication between the parties and expert legal advice. While it may not be possible to anticipate every future scenario, a well-drafted agreement should provide a mechanism for addressing significant changes, ensuring that the financial arrangements remain fair and equitable in light of altered circumstances.

For example, the agreement might include clauses that outline a process for reviewing and revising financial arrangements in the event of significant changes affecting the children. This may take the form of periodic reviews, mediation, family dispute resolution and other means to assist in reaching an updated agreement that aligns with the best interests of the children.

If you need further advice and guidance on this topic, speak with our experienced family lawyers Gold Coast at Frigo James Legal today.