Written by Family Law Partner Joelene Seaton
For people who do not want a court to decide how their property and finances are to be dealt with following a relationship breakdown, entering into a financial agreement can be a suitable alternative.
Please read on for our guide to everything you need to know about financial agreements and how to make them binding in the eyes of the law
Think of a financial agreement as an insurance policy, intended to protect your property and assets, with the hope of storing it in a drawer and never having to make a claim on it.
People who are intending to enter into a de facto relationship or marriage or people who are already in a de facto relationship or are married can enter into a financial agreement.
When Is The Best Time To Enter Into A Financial Agreement?
The best time to raise the matter with your partner is usually in the early days of the relationship before finances are intermingled. This is one of those things that can be uncomfortable to talk about with your new partner but I’ve seen many clients going through a relationship breakdown who wish they’d taken this “prevention measure” earlier on.
In most cases, when relationships break down, each partner is happy to divide their property in accordance with the financial agreement. I’m seeing more cases of separating parties challenging the status and enforceability of their financial agreements, prompting this guide!
What Are The Requirements For A Binding Financial Agreement?
The first request asked of the court is usually a declaration as to whether the financial agreement is binding or not. The Family Law Act 1975 lists the requirements for a binding financial agreement:
- The agreement is signed by all parties;
- Before signing the agreement, each party was provided with independent legal advice from a lawyer about the effect of the agreement and the advantages and disadvantages of making the agreement;
- Each party was provided with a signed statement by the lawyer stating that the requisite advice was given;
- The signed statements were exchanged between the parties;
- The agreement has not been terminated or set aside by the court.
Because the legislation imposes strict technical requirements, it is wise to engage a lawyer who is experienced in drawing financial agreements. If the agreement hasn’t been drawn correctly, the court may either declare it is not binding on the parties, or it has a discretion to declare it binding if it is satisfied it would be unjust and inequitable if the agreement were not binding, notwithstanding it doesn’t comply with the strict technical requirements.
So, you can see when these agreements are challenged it can turn an otherwise amicable separation into an emotionally draining and stressful process.
What Happens If The Agreement Is Declared As Non-binding Or Is Set Aside By A Court?
If the court declares the agreement is not binding, then a property settlement will follow according to the provisions of the Family Law Act 1975. If the agreement is binding, the next question is whether it should be set aside. A court may make an order setting aside a financial agreement if it is satisfied that:
- The agreement was obtained by fraud. Fraud is defined as the using of false representations to obtain an unjust advantage, and it can be hard to prove. An example of fraud would be where a party did not disclose their income or property outside of the income or property details listed in the agreement. To this end, it is crucial that the information contained in the agreement is accurate.
- Entering into the agreement with the intention to defraud, or defeat a creditor or a de facto partner. This might be proved where a party owes money to a creditor and he or she uses the agreement as a means of transferring property or money to the other spouse to prevent the creditor from enforcing their debt against that property
- The agreement is void, voidable or unenforceable. This may arise where there has been misrepresentation, undue influence, mistake or duress.
- In the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out.
- A material change in circumstances has occurred since the making of the agreement (being circumstances relating to the care, welfare and development of a child of the relationship) and, as a result of the change, the child or the party who has the care of the child will suffer hardship if the court does not set the agreement aside. The hardship must result from the material change in circumstances, and not from some other cause.
- In respect of the making of the agreement, a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable. A finding of unconscionable conduct requires the innocent party to be subject to a special disadvantage which seriously affects their ability to make a judgment as to their own best interests, and for the other party to have known of the existence and effect of the special disadvantage.
- The agreement relates to superannuation interests that are subject to a payment flag that is unlikely to be lifted, or that are unsplittable. If the financial agreement is intended to cover superannuation interests, then it is vital to make enquiries of the superannuation fund before settling upon the terms of the agreement.
A good family lawyer will know how to spot these signs that may render a financial agreement vulnerable to being set aside.
While the status and enforceability of financial agreements prove to be an area of continuing legal uncertainty, what is certain is that litigation is expensive.
If you’re looking for the cheapest insurance premiums, chances are your policy won’t stand up when tested. Similarly, cutting corners when entering into a financial agreement is likely to cost you more in the long run.
Financial agreements are also an effective estate planning tool. Choose MBA Lawyers, we are family law specialists that will be able to ensure you, and your hard-earned assets, are properly protected through a financial agreement.
If you need assistance with drafting or developing a financial agreement to protect you in the event of a relationship breakdown, you can contact our Family Law team on 07 5539 9688 or you can contact our Family Law Partner Joelene.