Key takeaways
Binding financial agreements are difficult to set aside, with courts generally enforcing them even where they result in a poor or unfair bargain for one party.
To have an agreement set aside under section 90K(1)(d) of the Family Law Act, a party must prove a material change in circumstances relating to a child that causes hardship if the agreement remains in force.
The threshold for proving hardship is high, and even where the statutory requirements are met, the Court retains discretion and will consider factors such as the size of the property pool and access to spousal maintenance.
There are provisions in the Family Law Act 1975 (Cth) (FLA) that give the Court the power to set aside a binding financial agreement (financial agreement). A number of these provisions are well established in the case law, having been widely adopted and explored in depth, not least in Thorne v Kennedy.1 This article considers the restrictive nature of section 90K(1)(d) of the FLA which allows parties to set aside a financial agreement based on hardship.
Subject to compliance with the FLA, parties are free to enter into such agreements as they consider appropriate. The Court recognises that, at the time of signing an agreement, parties may enter into a ‘bad deal’, and there is no provision in the FLA enabling an agreement to be set aside merely because it is unfair. In Hoult & Hoult, the Full Court said:
“The point of the legislation is to allow the parties to decide what bargain they will strike, and provided the agreement complies with the requirements of section 90G(1) they are bound by what they agree upon. Significantly, in reaching agreement, there is no requirement that they meet any of the considerations contained in section 79 of the Act, and they can literally make the worst bargain possible, but still be bound to it”.2
When can a financial agreement be set aside for hardship?
A party may say that, if the financial agreement is enforced and implemented, then they would experience hardship in caring for the child/children of the relationship. If this is the case, a party could seek to set aside the financial agreement pursuant to section 90K(1)(d) of the FLA. However, there are four very specific elements that must be established for a claim to succeed.
These elements are:
1. There has been a material change in circumstances
2. The change relates to the care, welfare and development of a child of the marriage
3. As a result of the change hardship arises
4. Hardship would result if the agreement remained in force
There is a crucial link between the change in circumstances and the hardship. An application to set aside an agreement, due to an assertion of hardship, must arise from the material change in circumstance,3 not the agreement itself.4
What is a material change in circumstance?
The test, on the current authorities, is difficult to satisfy. There is a distinction between the language adopted in s79A(1)(d) of the FLA, which refers to circumstances of an ‘exceptional nature’, and section 90K(1)(d), which requires only that the change be ‘material’. The authorities suggest that ‘material’ represents a lower threshold than ‘exceptional’,5 and, while section 90K(1)(d) sets a seemingly lower threshold, it nevertheless requires a change that is substantial, significant and relevant.6
In the unreported decision of F and F, the wife alleged that the birth of the parties’ first child was a material change where the agreement contemplated that the birth of children may be a change in circumstance. However, the agreement also provided that it would be binding even if a child was born. The husband submitted that the words ‘as a result of the change’ indicate the relevant hardship that section 90K(1)(d) FLA is concerned with, being hardship caused by the change in circumstances, not the agreement itself. The wife maintained that the care arrangements post separation significantly disrupted the child’s living arrangements. Sutherland CJ cited Forster J in Chaffin & Chaffin:
“It is life experience that upon separating the primary obligation as to parenting will often fall upon one parent, in most cases the mother. It is also life experience that the other parent save for exigencies such as to risk etc will play a significant if not substantial role in their child or children's lives. Such a result imposes on the primary carer an obligation that can be regarded as "an appreciable detriment" in having to undertake a primary caring role when during cohabitation the household comprises both parents. Such a circumstance alone cannot amount to hardship in the context of s90K(1)(d). It represents simply one of the expected exigencies of relationship breakdown”.7
In Fewster & Drake, the Full Court stated that the birth of a child may, of itself, be a material change in circumstance, for the purposes of section 90K(1)(d), but it is dependent on all of the circumstances.8 In this case, the wife was not successful in her application where there was no evidence reflecting how the circumstances, following the birth of or care, development and welfare of the second child, impacted her financial position. Therefore, the evidence did not permit a comparison to be undertaken between the financial position of the child or the wife with or without the agreement.9
Chaffin & Chaffin10 illustrates the type of unusual and compelling circumstances in which the threshold was satisfied. There, Forster J found that a material change in circumstances was established, where the wife was left with all parenting obligations for three children, one of which had special needs, such that there was an imposed hardship.11
How do courts assess hardship?
Hardship is a separate and distinct requirement under section 90K(1)(d). The statute does not prescribe how hardship should be measured, but the authorities suggest the Court must undertake “some comparison between the position of the child, or the person with caring responsibility, if the agreement remains in place and the position of that child or person if the agreement is set aside”.12
In Carran & Carran,13 Judge Turnbull referred to the definition of ‘hardship’ in the context of limitation periods under sections 44(4) and (6) FLA, as considered by the Full Court In the Marriage of Whitford and Whitford,14 to have a meaning akin to such concepts as hardness, severity, privation, that which is hard to bear or a substantial detriment.
In Fewster & Drake, the Full Court accepted the husband’s submission that hardship required something more than unfairness.15 Therefore, an agreement should not be set aside merely because of loss of a potential entitlement under s79 FLA.16
The Court's discretion to set aside a financial agreement
Even if the elements of section 90K(1)(d) are established, that does not compel the Court to set aside an agreement. The power remains discretionary, requiring the Court to consider all relevant circumstances before determining whether the agreement should be set aside.
Some factors that have influenced the Court when exercising its discretion include:
Why is it so difficult to set aside a financial agreement for hardship?
The authorities demonstrate that section 90K(1)(d) sets a high threshold. Consequently, it has been successfully invoked in only a limited number of cases.
The judicial assessment of all considerations seems to include a ‘subjective’ nature of what is considered hardship. With subjectivity comes a wider discretion, for example, a larger property pool would be less likely to constitute hardship and the ability to claim spousal maintenance may negatively impact a parent’s case to set aside the agreement pursuant to section 90K(1)(d). The extent of the subjectivity appears to create unpredictability, something that could be addressed with a more formulated, principled methodology when deciding whether enforcing a rigid contract outweighs the hardship of a child or parent.
Practical considerations when drafting financial agreements
To achieve contractual certainty, legal practitioners must draft agreements with future realities in mind, particularly the possibility of children. This requires proactive protection of the parent likely to assume the caregiving role, safeguarding them against the financial detriment of unforeseen circumstances.
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1 (2017) 263 CLR 85.
2 (2013) FLC ¶93-546, [37].
3 F and F [2024] FCWA 114, [39] (‘F and F’)
4 Carran & Carran (2022) 65 Fam LR 114, [88].
5 Ibid [48].
6 Ibid [52].
7 Chaffin & Chaffin [2019] FamCA 260, [185]; F and F (no 3) [47].
8 Fewster & Drake (2016) FLC ¶93–745, [62] (‘Fewster’).
9 Fewster (no 9) [84] – [86].
10 [2019] FamCA 260.
11 Ibid [188].
12 Fewster (no 9) [67].
13 (2022) 65 Fam LR 114.
14 In the Marriage of Whitford and Whitford (1979) FLC ¶90-612, 78,144–78,145.
15 Fewster (no 9) [68].
16 Ibid [65] – [71].
17 Frederick v Frederick (2019) 60 Fam LR 1, [97].
18 Ibid [98].
19 Fewster (no 9) [45].
20 Pascot v Pascot [2011] FamCA 945, [370].