Setting Aside a ‘Pre-nup’ Agreement in Australia

Case Note: Fredrick v Fredrick (2019) FLC 93

Fredrick v Fredrick (2019) FLC 93 (‘Fredrick’) is a recent appeal case to the Full Family Court of Australia regarding a dispute over whether a Binding Financial Agreement (‘pre-nup Agreement’) could be set aside.

In this case, Mr and Mrs Fredrick entered into a pre-nup Agreement in 2007. Under this Agreement, the wife was only entitled to any increase in value to the husband’s assets specifically listed in the pre-nup. These included some shares and a large sum of money. In 2017, the husband filed an Application in Court seeking a declaration that the Agreement was valid and binding. The wife sought to have the Agreement set aside due to a change in her circumstances since signing the Agreement. In 2018, a Judge of the Federal Circuit Court of Australia declared the Agreement to be binding. The wife appealed the decision.

In the appeal matter, the wife said the Agreement should be set aside under s 90K(1)(d) of the Family Law Act 1974 (‘FLA’) because one of their children was diagnosed with severe developmental disabilities after the Agreement was signed. The child’s disability was such that the wife was required to provide a significant level of care and incur higher than usual costs in order to meet the child’s needs. These costs were not contemplated in the pre-nup Agreement. By the time the child was 12, she was still unable to speak properly and was not toilet trained. The wife argued that these circumstances constituted ‘hardship’ as she had no financial support from the husband and had to care for her children on an almost full-time basis. Further, she had to work part-time in order to obtain the funds required to support herself and the children.

Section 90K(1) of the FLA sets out the circumstances in which the Court may set aside a financial agreement. Subsection (d) states that a pre-nup Agreement may be set aside if, since the making of the Agreement, a material change in circumstances has occurred and as a result of that change, the child or the party to the Agreement will suffer hardship if the Court does not set aside the Agreement. A material change relates to the circumstances of a child’s care, welfare, and development as it relates to the parent who has caring responsibility for the child.

A key issue in the appeal was the test to be applied under both s 90K and Fewster v Drake (2016) FLC 93 (‘Fewster’). This test requires a comparison between the circumstances of the child or person with caring responsibility with the Agreement in place, and their circumstances if the Agreement is set aside.

In the first instance, the primary judge gave no weight to the husband’s evidence in regards to the value of his property listed in the Agreement. For the wife to earn anything from the agreement, the parties had to prove there was an increase in the value of the assets listed in the pre-nup. The husband estimated there was a $100,000 increase in total. Neither party had obtained formal valuations and the husband only gave oral estimates. The Judge did not accept the estimates and thus, found it impossible to apply the Fewster test. The Judge therefore declared the pre-nup agreement valid and binding.

The wife appealed this declaration, and was successful. It was held that a person can give evidence by way of an oral statement regarding the value of their own real estate. This admission can be given weight, notwithstanding such weight might be a lot less than the weight given to that of a professional valuer. It is quite common that when a person only owns a few significant assets, they are quite aware of the purchase price and would have some knowledge of their value.

Given this was not a final property hearing, formal valuations were not necessary. Instead it was quoted that, “The court should be cautious in shutting out a party from the opportunity to make his case at the appropriate time… he cannot know and should not insist on being able to see in all of its ramifications the full strength of the case which will eventually be presented at trial” (Wood v Glaxo Australia Pty Ltd [1994] 2 Qd R 431). In summary, a hearing which requires the parties to produce details such as independent evidence of valuations, is not required for determining if a pre-nup agreement should be upheld. Furthermore, according the perspective of a reasonable third party, it was quite evident that the parties agreed upon the values listed in the pre-nup agreement and thus intended to be bound by them. This meant a formal market valuation was not necessary for the assets in 2007 when the pre-nup agreement was made, even if the price listed in the pre-nup was not accurate (Con-Stan Industries of Australia v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; Grundt v Great Boulder Gold Mines Ltd (1937) 59 CLR 641).

The other reason the primary judge did not set aside the pre-nup agreement was because he believed the wife could claim child support payments to alleviate her hardship since she was not already doing so. Upon appeal, it was held that spousal maintenance and the division of money from the property pool are two separate issues. While child support is directed towards the support of the child, its purpose is not to ameliorate the hardship of the person who is primarily caring for the child, even if such payments are larger than necessary. Property pool division and spousal maintenance attract different considerations and thus, cannot be substituted for one another.

The wife was successful in her appeal. The husband’s value estimates were accepted and it was determined that if the pre-nup agreement was not set aside, the wife would be entitled to $100,000 but if it was set aside, she could be entitled to $4,000,000. Hardship was readily established and it was held that the contributions made by the wife could not be adequately satisfied by the smaller pool of money. The primary Judge’s order was set aside.

Want to know more about setting aside a prenup in Australia?

If you are concerned about a binding financial agreement you have entered into but want to set aside, please do not hesitate to contact our client liaison team on (07) 3252 0011 and we will endeavour to help you reach a just and redemptive outcome with one of our experienced lawyers.

This blog was written by Lauren Hooper & Eustacia Yates.

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