Setting aside a financial agreement on the basis of hardship

Couples sometimes choose to enter into financial agreements before during or after marriage or de facto relationship, so that they can agree how their assets will be divided in the event that they separate, to save stressful and potentially disputes in the future.  Financial agreements are particularly popular with couples who have children from previous relationships.

Financial agreements are important documents which must be carefully drafted.  Failure to do so can mean that the financial agreement can be found not to be binding, or be set aside by the Court.

Financial agreements can be set aside by the Court for one of the reasons set out in the Family Law Act.  One of these reasons is hardship, as set out below:

A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that: … (d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside

What does hardship mean in family law?

In a recent decision of Daily v Daily [2020] FamCAFC 304, the Full Court of the Family Court demonstrated that hardship is not just a statement, but a comparison of position.

The Court re-examined the application of the test for hardship as set out above.

On appeal, the Court confirmed that applying this test requires a comparison to be made between the position of the party claiming hardship at different points, being:

• their position should the financial agreement remain in place; and
• their position if the financial agreement is set aside.

The Court found that it was not enough for the primary judge to have simply noted that a comparison should be made because they failed to actually make the comparison.

The calculation of the position in this case was noted to be difficult because the terms of the financial agreement were found to be relatively uncertain. However, it was held that this uncertainty did not mean that the test for hardship should not be applied.

This case is therefore important for all parties seeking to enter into, or indeed set aside financial agreements. It confirms that agreements will not be set aside simply based on broad allegations of hardship but rather a much more careful consideration will be given to the position of parties— where they are now, and where they could be in the absence of the agreement.

Background to the case

The parties to the matter were Mr Daily (the Appellant) and Ms Daily (the Respondent). The parties began cohabitation in 1997, became engaged in 2003 and married in September 2005.

During this time, in 2002, the Appellant had sought advice with respect of a financial agreement. Whilst a draft was produced in 2002, it was in May 2005 that the Appellant requested a copy to provide it to the Respondent so that she could seek independent legal advice. She did, and was advised the agreement was inappropriate, so it was redrafted before being signed in July 2005. Whilst the agreement initially provided, amongst other things, that each party retain any work entitlements excluding superannuation entitlements accumulated after the date of marriage, this was hand-amended and initialled by the Appellant so that both parties would retain their superannuation entitlements accruing after the date of marriage as well.

Orders sought by the parties

The Appellant sought that the order be enforced, whilst the Respondent sought a declaration that the agreement be set aside. The Respondent’s argument was based on claims that she had taken on the role of primary caregiver and so had experienced a significant reduction in her earning capacity.

The Respondent also alleged that since returning to work she had only been able to return to part-time work and therefore experienced a continuing diminished ability to contribute to her superannuation. She argued that the legal advice she had received was that the agreement would not be binding following the birth of any children.

The primary judge found that the birth of the children, whether or not contemplated constituted a material change in circumstances, as did the parties’ separation and subsequent shared parenting role. The Respondent was found to suffer hardship if the agreement were not set aside because the birth of the children led to her reduced capacity to be employed, she had been incurring expenses exceeding her income and was unable to secure accommodation other than rental.

On appeal

On appeal, the Court held that it was well settled that the test for hardship required a comparison to be made between the position the party would be in should the agreement remain in place, and that should the agreement be set aside. Whilst the primary judge had noted this requirement, the Appeal Court found that the primary judge did not actually come to any conclusion as to the position in either case. Indeed, the primary judge noted that the agreement and therefore the entitlements of each party may be incapable of being clearly understood because of ambiguous phrases contained in the agreement.

Conclusion

The Full Court set aside the primary judge’s order and remitted the matter back to the primary judge for rehearing, however with reservations about the clarity of the agreement.

This cases therefore highlights the importance of:

• carefully drafting financial agreements; and
• receiving complete and appropriate legal advice so that you can make informed decisions about entering into such agreements.

It also provides clarity and insight into how a court will examine your situation should you wish to set aside a financial agreement on the basis of hardship.

If you would like further advice about financial agreements, please contact one of the experienced members of our team here at Scanlan Carroll.

The content of our news articles are provided for information purposes only and do not constitute legal advice. We recommend that you seek professional legal advice for your specific circumstances.