It is possible for couples (married, defacto and same sex) to enter into a Financial Agreement (often to referred to as a Binding Financial Agreement) to regulate disposal of their property, assets, liabilities, superannuation entitlements and maintenance Orders without the involvement of the Federal Circuit Court or Family Court.
WHEN CAN YOU HAVE ONE?
A Financial Agreement can be entered into prior to the relationship/marriage, during same or at the end of the relationship/marriage.
WHAT IS THE EFFECT OF A VALID AGREEMENT?
A valid Financial Agreement at first instance sets out each party’s entitlements in relation to financial matters (including property settlement and/or maintenance) with a view to providing certainty to each party hopefully leading to no litigation at the end of their relationship/marriage.
In the event that there is no valid Agreement in force, then each party’s entitlements and issues relating to financial matters are dealt with through the Family Law system.
Many parties prefer to have a private Agreement and control of their destiny rather than having to go through a Court process and letting a Judge determine entitlements.
Some Agreements include “sunset clauses” for example:-
- That the Agreement is for a limited time (say the first five years of the relationship only); or
- Until the happening of a particular event (say the birth of a first child).
STRICT LEGAL REQUIREMENTS
Due to the fact that an Agreement dealing with what is to take place in the future following a breakdown has not been pre-approved by a Court, there are very strict requirements in relation to the content of the Agreement and the requirements for the signing of same including:-
- The parties’ conduct around making the Agreement;
- The need to make full financial disclosure to each other;
- The terms of the Agreement, and what the document must cover;
- The signing of the Agreement itself;
- The receipt of separate independent legal advice; and
- The provision of independent certificates of separate legal advice in the Agreement.
In the event that the strict legal requirements are not followed, there would be a significant risk that upon the Agreement being challenged in the Court, that the Court would set aside the Agreement.
ADVANTAGES OF AN AGREEMENT
- Parties want certainty about future finances;
- Parties see the Agreement as of assistance in avoiding dispute between them about finances;
- Having an Agreement helps avoid the expense, delay, uncertainty and stress of a future Court-determined property settlement;
- People do not like being told what is fair by a future Court and prefer to reach agreement directly together;
- Agreements enable parties to quarantine out particular assets or inheritances or family gifts and the like, which would otherwise be at risk if the Court determined a property settlement.
DISADVANTAGES OF AN AGREEMENT –
Examples of potential disadvantages (noting that each case needs to be treated on its own merits) include but are not limited to the following:-
- Raising the subject or trying to agree to terms can be uncomfortable and detrimental to a relationship when all may be going well.
- The strict requirements for a Financial Agreement and the broad grounds upon which they can be set aside, can make them costly to draft, prepare, negotiate, advise on and finalise.
- In some circumstances, after a lot of hard work and negotiation, final terms cannot be agreed by which time considerable effort and costs may have been involved.
- Because of the strict requirements of full disclosure, some parties feel uncomfortable about divulging their full financial circumstances to the other party particularly if the relationship is fairly new.
- There is no process for the official registration of a Financial Agreement and problems can arise if the original is lost or destroyed.
- The terms of the Agreement require a lot of crystal-ball gazing and second-guessing. It can be hard for parties to imagine what circumstances they might be in many years after the Agreement is signed.
- There is no absolute guarantee that such an Agreement will remain binding and unchallengeable in the future.
GROUNDS FOR CHALLENGING AND SETTING ASIDE A FINANCIAL AGREEMENT
A Financial Agreement is essentially a private contract between parties but that Agreement can be set aside by the Family Court in certain circumstances including the following:-
- A party behaved unconscionably or put pressure on the other party with the result that the Agreement was obtained by a degree of coercion.
- The Agreement was obtained by fraud.
- The Agreement was entered into for the purpose of defrauding or defeating creditors.
- The Agreement is not prepared in accordance with the legislation and is therefore unenforceable.
- There has been a failure to make full and frank financial disclosure to the other party.
- Since the making of the Agreement there is in material change in circumstances (for example in relation to the welfare of a child) and hardship will occur if the Agreement if not set aside.
TERMINATING A FINANCIAL AGREEMENT BY CONSENT
If you and your partner agree that you wish to terminate an Agreement, this cannot be done verbally and the termination must be in writing.
Termination can occur by either:-
- The parties signing a Termination Agreement – this is simply a short document; or
- If they enter into a new Financial Agreement including a provision terminating the old Agreement.
Further it is worth noting that:-
- If the Financial Agreement is set aside by a Court that of course, has the same effect as a termination;
- If de facto parties to an Agreement subsequently marry then the Agreement between them ceases to be binding although technically is not set aside at that point. A fresh Agreement would then need to be entered into by the parties if they still want to be bound by similar arrangements;
- Likewise, legislatively, sunset clauses do not in and of themselves terminate an Agreement.
In conclusion, Financial Agreements are complex documents unless they are drawn appropriately and in strict compliance with the law, there may be a risk that the Agreement will be set aside.
On the other hand, if the Agreement is drawn appropriately and the implementation of the Agreement results in an appropriate outcome at law, there is every prospect that the Agreement would be found to be valid if it was ever challenged.
It needs to be noted however that if the implementation of the Agreement is so unfair to one of the parties, then there is the real prospect that the Court will take the view that the Agreement was obtained irregularly, is unjust and should be set aside.