A Guide On Binding Financial Agreements

Every day, the courts and corridors of the Federal Circuit and Family Court of Australia are filled with separating couples and families, seeking that the Court adjudicate or approve their financial property settlement.

It is for this reason that more and more couples are opting to enter into Financial Agreements (colloquially referred to as pre-nuptial agreements) either prior to or during their relationship or marriage to deal with and protect their assets, liabilities, and financial resources in the event they separate down the track.

What is a Financial Agreement?

Financial Agreements are governed by the Family Law Act 1975 (Cth.) and are commonly defined as a contract between couples regarding how their assets, liabilities and financial resources are to be treated between them. That is, by entering into Financial Agreements, parties can effectively oust the jurisdiction of the Federal Circuit and Family Court of Australia to adjudicate over their property/financial settlement and instead are bound by the private agreement that has been reached between them.

The Case for Financial Agreements - Advantages

Some advantages of Financial Agreements are:

1. Can be made before, during or after a relationship or marriage:

In the event of separation, there are only a few avenues available to couples to formally sever their financial interests, being by Order of the Court, Consent Orders or a Binding Financial Agreement. Out of these options, Financial Agreements may be entered into at any point prior to, during or after the relationship or marriage.

2. Flexibility:

Financial Agreements can be tailored to each couples needs and wishes; meaning that parties can elect for their Agreement to encompass the entirety of their assets, liabilities and financial resources or can restrict or quarantine the Agreement to particular items, some common examples being:

• Quarantining a parties’ business interests or shareholdings in a Company;
• Quarantining inheritances or future inheritances that a party might receive in future;
• Preventing future spousal maintenance claims from being made.

3. You are in control:

A Financial Agreement can be entered into without Court involvement and can be completely decided by the parties in line with their wishes.

4. Peace of mind and certainty;

Whilst it is not an ideal topic of conversation to have with your fiancé, partner or spouse, having a well drafted Financial Agreement in place can offer parties peace of mind that should the relationship or marriage breakdown, there is an Agreement in place to resolve financial matters without the potential to proceed to litigation.

The Case against Financial Agreements – Disadvantages

1. The Agreement may be set aside by the Court:

A Court may find that a Financial Agreement is void or unenforceable and that the Agreement should be set aside. The circumstances wherein a Court may make such a decision are outlined in s 90K of the Act, some of which are broadly summarised below:

1. That the Agreement was entered into to defraud or defeat a creditor;
2. When there has been fraud;
3. Where there has been duress or undue influence (“including ink on the wedding dress”);
4. Significant change to the circumstances of the parties;
5. That a party failed to disclose information to the other party when entering into the Agreement.

In the event that an Agreement is set aside, the matter will revert back to the jurisdiction of the Federal Circuit and Family Court of Australia for adjudication.

2. Amending the Agreement:

A Financial Agreement is unable to be amended after it has been finalised. Instead, what will be required should you wish to change your Agreement is to terminate that Agreement and enter into a new one. Pursuant to s 90J parties can terminate an Agreement by either:

1. Inserting a clause into a new Agreement terminating the previous Agreement; or
2. Entering into a Termination Agreement.

Independent Legal Advice

As Financial Agreements operate to ‘contract out’ of the jurisdiction of the Family Courts, there are extremely strict and rigid requirements that must be met in order to ensure that an Agreement is valid and binding.

As the Courts have no involvement in the drafting or finalising of Financial Agreements, the Court is unable to act as a safeguard for the parties. To combat this, it is a fundamental requirement pursuant to s 90G of the Family Law Act 1975 (Cth) that each party obtain independent legal advice from a legal practitioner on their rights and the advantages and disadvantages of entering into a Financial Agreement. Without this advice a Financial Agreement will not be binding on the parties.

Next Steps

Every family and couple are unique and have different needs and wishes for Financial Agreements. The above is not to be construed as legal advice.

Szabo & Associates Solicitors are a leading family law firm in Sydney providing comprehensive legal advice on all aspects of family law, including Financial Agreements. If you require assistance in relation to any matter raised in this overview, please contact us on (02) 9158 6507 or fill in the online contact form for a confidential discussion.