When Is a BFA Void for Undue Influence?

Binding Financial Agreements (BFAs) are an important tool in family law. They often provide certainty after separation.

However, they are not always “fair”. Parties can enter into what is known as a “bad bargain”.

The recent decision in Goffe & Ottoson highlights this principle. It confirms that hard bargaining is not the same as legal coercion or undue influence in a BFA.

What was this case about?

The parties began their relationship in 2001 and separated in January 2022 after a 20-year marriage. They had three children.

In June 2022, they entered into a Binding Financial Agreement (BFA).

At that time, the property pool was valued at approximately $2,173,000.

Both parties accepted that the wife had made significantly greater financial contributions. These included:

• $330,000 in initial equity
• A $100,000 gift from her parents
• A higher income throughout the relationship

Under the agreement, the husband received a $255,000 cash adjustment. This gave him 31.7% of the total property and superannuation pool.

Importantly, he also retained his Department of Veterans’ Affairs (DVA) pension. This pension was tax-free and valued by an actuary at $773,717, payable for life.

Can a BFA be set aside for undue influence?

A BFA can be set aside under section 90K(1)(b) of the Family Law Act 1975 (Cth).

However, a party must prove the agreement was obtained through undue influence or unconscionable conduct.

This is a high legal threshold.

The leading case of Thorne v Kennedy confirms the test. The court must be satisfied that the person’s judgment was “markedly sub-standard” due to pressure applied.

In simple terms, the pressure must remove real freedom of choice.

What might constitute undue influence?

The husband argued that the wife applied pressure that removed his ability to freely decide.

He relied on a series of communications after separation.

These included threats of legal action. In one email dated 13 April 2022, the wife stated:

• “I do have a claim for damages I can bring in a Civil Court for recklessly endangering my health… The police charging you with Criminal Offences relating to this too is also likely.” [27]

She also stated:

• “If we agree on 250K then I will agree not to pursue you for any civil damage claim or criminal claim.” [32]

The communications also included reputational pressure.

The wife suggested that personal conduct could be exposed in legal proceedings. She said:

• “A lot of that you will not want to be known about you and your behaviour will be involved… I know you will not have told your family everything.” [27]

There were also repeated references to legal advice and urgency.

She stated she had consulted “one of Hobart’s top family lawyers” and would follow that advice.

She also encouraged quick resolution, stating:

• “It would be good if I had something from you… before then.” [29]

Later, she imposed a deadline:

• “I will be considering all my options if there is no signed agreement… by the end of the week.” [44]

The husband argued that these communications created pressure, urgency, and compulsion.

The court accepted that, viewed in isolation, some statements could appear threatening or coercive.

However, the court emphasised context.

How does the court consider the context of undue influence claims?

The court assessed the full circumstances, not individual messages.

Several key factors were important:

• The husband did not immediately accept the proposal
• He had legal representation before signing the BFA
• His solicitor knew about the alleged threats and advice
• The wife was entitled to negotiate strongly
• There was no immediate urgency requiring agreement
• The husband also negotiated a Binding Child Support Agreement, which was beneficial to him

Importantly, this agreement was inconsistent with the claim that he lacked independent judgment.

Because of these factors, the court found the husband failed to prove undue influence on the balance of probabilities.

What is a “special disadvantage” in family law property cases?

The husband also argued he was at a special disadvantage.

He relied on his diagnoses of Post-Traumatic Stress Disorder (PTSD) and Major Depressive Disorder (MDD).

He said these conditions made him more vulnerable during negotiations.

The court rejected this argument.

First, both parties had similar mental health conditions. This meant neither party was clearly disadvantaged.

Second, expert evidence confirmed that individuals with these conditions can still make informed legal decisions.

The court also considered the husband’s daily functioning. He worked full-time on a farm and in a supermarket.

This level of functioning was inconsistent with a claim of incapacity.

Most importantly, he had independent legal advice at all stages.

What are the risks of signing a BFA against legal advice?

A key fact was that the husband signed the BFA despite receiving very strong legal advice not to proceed.

His solicitor warned him about the risks and potential unfairness of the agreement.

This was highly significant.

The court found that receiving “proper, comprehensive, and cautious” legal advice meant the husband understood what he was signing.

The solicitor’s certificate also confirmed there was no evidence of coercion.

This strongly supported the conclusion that the agreement was voluntary.

What does this case mean for BFAs?

This case confirms an important principle.

A Binding Financial Agreement does not need to be fair to be binding.

Parties are allowed to enter into a bad bargain.

To succeed in an argument of undue influence BFA, a party must show more than pressure or regret.

They must prove their ability to make a free and informed decision was seriously compromised.

If a person receives independent legal advice and still proceeds, the court is unlikely to intervene later.

Worried about undue influence in a BFA? We can help

At Rowan Skinner & Associates Lawyers, we provide expert advice on Binding Financial Agreements (BFAs) and disputes involving undue influence in a BFA.

We help clients understand the risks before signing any agreement and advise on when a BFA may be set aside due to undue influence or other legal issues.

If you need advice about an undue influence BFA, contact our team on (03) 9995 9155 for an obligation-free discussion.

We assist clients throughout Melbourne and the northern suburbs, including Northcote, Alphington, Carlton, Fitzroy, North Fitzroy, Kew and Heidelberg, as well as South Melbourne and South Yarra.