The Family Law Act 1975 and Federal Circuit and Family Court (Family Law) Rules 2021 set out a positive obligation for a party entering into financial orders for the purpose of a property settlement to provide full and frank disclosure of their financial circumstances. Whilst there are no mirror provisions which apply to a party entering into a Binding Financial Agreement, an obligation arises because, if such disclosure does not occur, the Court has the discretion to set aside such an agreement where a party has failed to disclose a material fact relating to their financial circumstances.
Why must a party provide financial disclosure of their financial circumstances prior to entering into a Binding Financial Agreement?
A party seeking to set aside a Binding Financial Agreement entered into pursuant to the Family Law Act may seek relief under the following provisions:
- Pursuant to Section 90K (in the case of a marriage) and 90UM (in the case of a de facto relationship) of the Family Law Act, a party may seek that the Court may set aside a Financial Agreement that was obtained by fraud, including non-disclosure of a material matter;
- Alternatively, a party may seek that the Court exercise common law and equitable principles by setting the agreement aside pursuant to Section 90K(1)(b) of the Family Law Act, including a party’s failure to provide accurate disclosure of their financial circumstances.
In the recent decision of Quincey & Quincey [2024] FedFamC1A 30, Justice Tree of the Federal Circuit and Family Court of Australia upheld the decision of the trial judge to set aside a Binding Financial Agreement entered by the parties, on the basis of material non-disclosure by the Husband.
At first instance, the trial judge found that the Husband had failed to provide disclosure to the Wife of material facts relating to his financial circumstances, including:
1. There had been a reduction of over $560,000 in the value of the net asset pool in the weeks prior to the parties entering into the Binding Financial Agreement;
2. He had purportedly entered a loan with his parents, which was similarly not disclosed to the Wife; and
3. There had been a reduction in the Husband’s personal savings of approximately $450,000 prior to the Wife signing the Binding Financial Agreement.
What lessons emerge from the decision of Quincey?
1. Both parties should provide full and frank disclosure of their financial circumstances, prior to entering into a Binding Financial Agreement;
2. Such disclosure should be made available by way of exchanging source documents such as bank statements, tax returns, loan documents, etc. It is preferrable to a party simply providing an estimate of the value of their assets, liabilities and superannuation, as it enables the other party to “look behind” such statements to ascertain for themselves the accuracy of such information;
3. Parties should have sufficient time to review and consider such financial disclosure in advance of entering into a Binding Financial Agreement;
4. Caution should always be exercised when parties are entering into a Binding Financial Agreement, but particularly in the event that are parties entering into an agreement after a period of temporary separation, if there has been disharmony within the relationship, or if there is a power imbalance between the parties.
Financial disclosure is important when entering into a Binding Financial Agreement as the information exchanged may inform a party whether they still wish to enter into an Agreement or not.
If you wish to obtain specialist advice in relation to Binding Financial Agreements, contact Robinson + McGuinness to arrange an appointment on (02) 6225 7040, by email on info@rmfamilylaw.com.au or get started now online with one of our experienced lawyers.