What is a financial agreement?
The Family Law Act 1975 (Cth) (the ‘Act’) sets out the rules concerning marriage, divorce, responsibility for children and financial matters after the breakdown of a marriage or de facto relationship.
Separating couples are encouraged, where possible, to avoid Court proceedings to resolve property matters and the Act acknowledges that people should be free to divide their property by agreement in the event of a break-up. Consequently, certain provisions allow parties to ‘contract out’ of the laws and processes that would normally apply in dividing property and to negotiate their own arrangements without Court intervention.
Financial agreements are also referred to as binding financial agreements or pre-nuptial agreements and can be made before or during a marriage or de-facto relationship or after the breakdown of a relationship. Agreements made before or during a relationship will determine how property is to be divided between the parties if the relationship ends. An agreement made after a relationship breaks down formalises the division of property as agreed between the parties.
How is a financial agreement made?
Financial agreements may contain provisions relating to the division of property and resources and the provision of maintenance. When negotiating the agreement, the parties must be honest in their dealings and give proper disclosure of their assets, financial resources and estimated values.
Once a verbal agreement has been reached, the parties must meet separately with a Lawyer to receive independent legal advice and sign an acknowledgement that they are each aware of their rights and obligations under the agreement.
Generally, one party’s Lawyer will document and prepare a draft agreement based on the negotiations, and forward this to the other’s Lawyer for consideration. Once any amendments are made and the agreement settled, they are signed with the appropriate acknowledgements by each party and their respective legal representatives.
If done correctly and under the right circumstances, financial agreements can be a less formal and cost effective solution to dividing property.
How is a financial agreement enforced?
Provided the agreement follows the formalities outlined above, and unless there are extenuating circumstances, a financial agreement is generally binding.
A financial agreement operates like a legal contact between the parties – each person has certain rights and must perform his / her obligations under the contract. This may involve the closing of bank accounts, the payment of money by one party to another within a particular time, or the sale of a home and distribution of funds according to the agreement. The parties must act reasonably and in good faith to fulfil the terms of the contract.
Financial agreements are not approved or registered in Court but, provided they are properly prepared and there are no circumstances existing that would make them void, will be enforced by a Court.
A person seeking to enforce a financial agreement must apply for a determination that the agreement is valid and enforceable. If the Court finds that the agreement is affective then an order will be made for its enforcement.
Setting aside a Financial Agreement
An application for enforcement of a financial agreement may be opposed by an application to have the agreement set aside which may occur in the following circumstances:
- The agreement was obtained by fraud or duress;
- A party failed to disclose significant assets when making the agreement;
- The agreement was made to defeat the interests of the other party or a person with whom one of the parties had pending property matters;
- There is a dramatic change in circumstances creating hardship for a party to the agreement or concerning the welfare of a child of the relationship;
- Generally, the Court considers it is ‘just and equitable’ to preserve the rights of a party.
What is the effect of the financial agreement?
If the agreement is made prior to or during the relationship, the provisions regarding distribution of property are triggered in the event of a breakup and the parties must divide their property in accordance with the terms of the agreement.
By signing a financial agreement, parties contract out of certain provisions of the Act that would otherwise determine how their assets should be divided. This effectively circumvents the Court’s usual process of dividing assets and determining spousal maintenance. More information on these processes is contained on our ‘Separation’ and ‘Spousal Maintenance’ pages.
Parties should be aware that a financial agreement may result in a less or more favourable division of property had the agreement not been in place and the usual property settlement processes under the Act applied.
Alternatives to financial agreements
In some instances, it is preferable for separating couples to have an agreement for the division of property endorsed by the Court through consent orders. This is more formal than preparing a financial agreement because the Court will need to approve the orders proposed.
The application for consent orders must include full financial disclosure by both parties and the Court will only approve the order if, on the information provided, it is just and equitable to do so.
Because of the Court’s involvement in considering and consenting to the orders it is arguable that they are less likely to be set aside and may provide greater finality to the separating couple’s affairs.
Consent orders are only used after a relationship breaks down and, unlike financial agreements, can include matters concerning parenting arrangements. Accordingly, in circumstances where separating couples need to have an agreement in place regarding both financial and children’s matters, consent orders will be more appropriate.
Our experienced Lawyers can provide advice on the most suitable way to finalise your property affairs and prepare the necessary documents for you. We will attempt to make the process as simple and cost-effective as possible whist ensuring your rights are protected and you receive a fair and reasonable distribution.
If you feel you have been pressured to sign a financial agreement, or there have been fraudulent circumstances surrounding the making of the agreement, then our Lawyers can advise on the process and likelihood of having the agreement set aside.