BINDING FINANCIAL AGREEMENTS

Since December 2000, married couples have been able to enter into Financial Agreements (also
referred to as Binding Financial Agreements), to regulate disposal of their property,
superannuation, maintenance, and other matters, without Court involvement.

De facto and same sex couples have been able to do so since 2009.

When can you have one?

A Binding Financial Agreement (often referred to as a “Prenup”) can be entered
into:

  • At the start of a relationship (“Prenup”); or
  • During the relationship; or
  • At the end of the relationship.

Who can have one?

  • Married spouses (under Sections 90A or 90B or 90C of the Family Law Act);
    and
  • Defacto partners, includes same sex couples (under Section 90UB or 90UC or 90UD of the
    Family Law Act); and
  • Since 2008 Agreements can include third parties such as parents, companies, partnerships, or
    creditors.

What does an Agreement do?

  • The aim of a Financial Agreement is to prevent parties taking each other to Court if there
    is a financial dispute at the end of their relationship. If there is no Agreement in place
    regulating a relationship then at separation parties have to turn to the Family Court or the Federal
    Circuit Court, to resolve their financial disputes. For the steps that this involves please read
    Property Settlement” ;
  • Many parties prefer to take control of their destiny instead of being told by a Court what
    is appropriate and fair later;
  • The Agreement can deal with property, debts, superannuation, maintenance, or simply one of
    these areas;
  • The Agreement can be used to distribute property on an interim or on a final
    basis.
  • Some Agreements include “sunset clauses” e.g.:
    • 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).
  • Other Agreements are intended to cover the entire relationship and to continue for the
    duration of that relationship.

Strict Requirements

Because an Agreement is not preapproved by a Court and because of its far reaching consequences
for the future, there are very strict requirements about:

  • 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.

If these strict legislative provisions are not followed there is a very significant risk that the
Agreement will simply not be binding at all, or could be set aside later by a Court.

Why have one?

  1. Parties want certainty about future finances;
  2. Parties see the Agreement as of assistance in avoiding dispute between them about
    finances;
  3. Having an Agreement helps avoid the expense, delay, uncertainty and stress of a future
    Court-determined property settlement;
  4. People do not like being told what is fair by a future Court and prefer to reach agreement
    directly together;
  5. 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 –

There are some disadvantages of entering into an Agreement. For example:

  • 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.

Setting aside a Financial Agreement –

A (Binding) Financial Agreement is like a contract. That contract can be set aside by the Family
Court in certain circumstances. This is covered in Section 90K of the Family Law
Act
and includes where:

  1. The Agreement was obtained by fraud;
  2. The Agreement was entered into for the purpose of defrauding or defeating
    creditors;
  3. The Agreement is not prepared in accordance with the legislation and is therefore
    unenforceable;
  4. There has been a failure to make full and frank financial disclosure to the other
    party;
  5. 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;
  6. A party behaved unconscionably or put pressure on the other party with the result that the
    Agreement was obtained by a degree of coercion.

When in particular might a party seek to set an Agreement
aside?

Example 1 –

Imagine that at the time when you signed the Agreement, you were heavily pregnant, had few assets
in your own name and had been “bullied” into signing the Financial Agreement – all at a time when
your circumstances seriously impacted your capacity to work through and protect your best interests.
Suppose you subsequently separated some years later. In such a scenario you might well want to try
to set the Agreement aside and look to the Court for a better settlement. The arrival of children is
an established ground for trying to set aside Agreements.

Example 2 –

Or supposing you find out after the Agreement has been signed, that your wealthier partner has
deliberately neglected to disclose hundreds of thousands of dollars worth of assets and pretended
she was of modest financial means. Add to that that the Agreement makes no provision for you to
receive any of her monies at separation even if by then you are sick and unemployed. Naturally you
might want the Agreement set aside on the basis that the other party had failed to make financial
disclosure.

Example 3 –

On the other hand, imagine if you thought your Binding Financial Agreement provided you with
certainty and clarity, and you were happy with its terms. The last thing you would want is for the
other party to ask a Court to set the Agreement aside later, due to a simple technical drafting
problem, particularly if there were a risk that the Court would give your ex-partner a bigger and
better settlement. There is a risk of that happening if the Agreement is not drawn strictly as the
law requires.

Terminating a Financial Agreement –

If you and your partner both decide that you want to terminate an Agreement, a verbal
agreement in those terms is of no effect. Sections 90J and 90UL of the Family Law
Act
set out how an Agreement must be terminated. This must be done 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 Binding 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. Provided Financial Agreements are
drawn with attention to detail, and faithfully prepared with regard for the strict legislative
framework, there is every chance that they will afford the intended protection to the parties
concerned.

The Family Law team at Pearce Webster Dugdales has extensive collective experience in
this challenging area of the law. We will be happy to meet with you to discuss your options ahead of
drawing the necessary Agreement on your behalf.