In recent years the soaring wealth of Australians and the increase in second marriages has given rise to a marked increase in couples seeking to enter into Binding Financial Agreements under section 90B of the Family Law Act 1975 (colloquially known as a pre-nup) before they marry.
Section 90B agreements allow parties entering into a marriage to contract out of the operation of Part VIII of the Act. There are a number of pre-requisites the most important being:
- That the parties each receive their own independent legal advice before signing the Agreement; and
- That the agreement of each party is not obtained through fraud or duress and neither party behaved unconscionably.
Agreements have been struck down by the Courts for failing to comply with the above conditions most notably in the case of Blackmore & Webber [2009] FMCA 154 where the Federal Magistrates Court set aside an agreement on the ground of fraud for failure to disclose. Whilst not deciding the issue the Federal Magistrate stated that were it not for the finding of fraud the agreement would have been struck down on the basis of duress and/or unconscionability.
Of further concern is the possibility that clauses in Binding Financial Agreements seeking to limit and release the parties from their obligations and rights to obtain greater provision under the will of their deceased spouse will be ineffective.
The administration of deceased estates falls exclusively within the jurisdiction of each State, whereas Family Law is now largely within the exclusive jurisdiction of the Commonwealth. In Victoria claims against a deceased estate (testator’s family maintenance claims) are governed by Part IV of the Administration and Probate Act 1958 which allows anyone to make an application to the Court for further provision from the deceased’s estate if they can establish that the deceased had a responsibility to maintain and support them. This most often arises where a child or spouse of the deceased is left out of the deceased’s will.
In New South Wales the legislative scheme differs slightly, in that section 95 of the Succession Act 2005 permits a Court to review the circumstances of limitations or releases in instruments such as Binding Financial Agreements and approve them. If the Court considers the release of a person from the rights they would otherwise have had under the Succession Act inappropriate, then the Court will not approve the agreement and the person will be free to seek further provision from the estate of a deceased.
The Court exercised its discretion not to release a person from their rights under the Succession Act in the case of Neil v Jacovou [2011] NSWSC 87, where a widow brought an application seeking further provision from the estate of her late husband. The parties had in 2001; three days before their marriage entered into a Binding Financial Agreement providing that each party would not seek further provision from the other’s estate. The husband battled illness until September 2006 when he died but not before the parties had a child through IVF treatment and the wife had nursed the husband for a number of years during his illness.
The Court denied the release in the Binding Financial Agreement which would have prevented the wife from seeking further provision from the estate of her husband. The Court in its reasoning stated that the wife had not given ‘due consideration’ to the effect of the death of the husband under the agreement when signing it, the agreement being made in the context of both parties being in good health. Further, the Court found that the ‘fairness and reasonableness’ of releasing the wife from her rights under the Succession Act could not be made out, as the unfairness of the agreement “did not contemplate the exceptional personal and financial demands that would be placed on … [the wife] early in her marriage”. [1]
The Court on the basis of its findings altered the Wife’s share of a $25 million estate from the 32% share allowed under the will to 65%.
The Courts in Victoria do not have the power to consider a release arising under a Binding Financial Agreement in the same manner provided for in New South Wales and at the time of writing the ability to enforce these type of provisions has not yet been ruled on. There is, however, in the High Court decision of Barns v Barns & Ors (2003) ALR 65 support for the view that attempts to contract out of Part IV of the Administration and Probate Act 1958 are contrary to public policy and therefore unenforceable.
[1] Neil v Jacovou [2011] NSWSC 87 at 85
