Binding Financial Agreements – Ambiguous Terms and Provisions

A binding financial agreement or BFA is an agreement made between two partners before, during or after their marriage. Generally, this agreement stipulates each partner’s assets and financial resources and also how they will be divided when their relationship breaks down.

There are many reasons why partners enter into binding financial agreements. Two common reasons would be to protect a partner’s asset from another partner and to give reassurance to the partner who has been through a divorce or separation.

Nowadays, having a binding financial agreement between partners is a fairly common practice. However, due care must be exercised when drafting such agreements because any ambiguity in the agreement could render the agreement unenforceable.

The recent case Warrick v Mia [2018] FamCA 426 illustrates the importance of having terms in a binding financial agreement clearly defined.

In Warrick v Mia, the husband and wife entered into a binding financial agreement during their marriage in 2007. The agreement was intended to help divide their matrimonial property and avoid any expenses and bitterness arising from litigation in the event of a divorce. As such, one key provision of the agreement is that upon divorce, any jointly owned property acquired by the parties during the marriage will be divided between them on a ‘contribution basis’. No definition for ‘contribution basis’ was provided in the agreement.

In 2013, the husband and wife declared the breakdown of their marriage. However, as opposed to what was intended, what ensued was a dispute between the husband and wife regarding the BFA, particularly the meaning of ‘contribution basis’. This matter was subsequently brought to court.

Considering all the facts and definitions, the court ultimately held that since ‘contribution basis’ is an operative term of the agreement and that objectively speaking, this term has an ambiguous meaning in the agreement, the binding financial agreement made in 2007 is unenforceable.

WHAT DOES THIS MEAN FOR BINDING FINANCIAL AGREEMENTS?Warrick v Mia confirms that for a binding financial agreement to be enforceable, there must be clear and unambiguous terms and provisions.

Hence, as the court in Warrick v Mia stated, a ‘simple stroke of the pen’ could clarify the meaning of a term and avoid this entire litigation.

There are several ways one may achieve this:

  • Use terms that have a clear meaning under the Family Law Act or other relevant legislation
  • Clearly define terms in the agreement
  • Includes provisions that clearly and precisely express the intentions of the parties

Nevertheless, the most important step is to consult a lawyer and have him or her draft the binding financial agreement.

Lawyers at Lincoln Legal provide professional legal services concerning binding financial agreements. They have experience in drafting binding financial agreements, litigation and resolving other related legal disputes.

Contact Lincoln Legal today to learn more about how we can help you with your legal enquiry.

We have offices conveniently located in HurstvilleWaterloo and Crows Nest who are ready to assist you.

Disclaimer: The information above is intended to be general information only and it should not be relied upon it as legal advice. If you seek professional advice please feel free to contact the team at Lincoln Legal or make an enquiry.