What is a Financial Agreement?

Also known as a cohabitation agreement, pre-nuptial agreement, post-nuptial agreement, divorce agreement or separation agreement, a Financial Agreement is a document governing your property interests at the end of a marriage or a de facto relationship.

A Financial Agreement is a private contract. It is a way to contract out of the property rules of the Family Law Act 1975. It can specify how a couple will divide their asset pool in the event that their relationship fails. It can also allow a separated couple to agree on an acceptable division of their assets.

It can also set out the payment of debts, spousal maintenance and other financial matters.

What should a Financial Agreement include?

Financial Agreements generally include clauses setting out:

1. a couple’s financial settlement;
2. any financial support (maintenance) one spouse is to provide to the other;
3. financial arrangements for the children; and
4. any incidental issues.

When can a Financial Agreement be entered into?

A couple can sign a Financial Agreement at any point before or during a relationship (marriage or de facto) or after the breakdown of the relationship.

Advantages of a Financial Agreement

Entering into a Financial Agreement can avoid drawn out and expensive legal proceedings.

A Financial Agreement can be a cost-effective way to protect your assets and of safeguarding your future income or inheritance, ensuring that you (and your children) are financially secure in the event that a relationship does not work out.

A Financial Agreement can provide a degree of certainty to a couple. If a relationship ends, they can avoid unnecessary arguments, prolonged court battles, and the associated emotional and financial stress.

Disadvantages of a Financial Agreement

Financial Agreements are complex contracts and require specialised family law advice. The court can set aside a Financial Agreement on the grounds of poor drafting or inaccurate advice.

What makes a Financial Agreement binding?

Although a Financial Agreement is a way of avoiding the rules of the Family Law Act, it is enforceable only if it complies with the requirements of the Act.

A Financial Agreement is binding on the parties if:

1. it is in writing and signed by both parties of their own free will; and
2. it includes a statement from each party acknowledging that they obtained independent legal advice on their rights; and
3. the agreement has not been terminated and has not been set aside by a court; and
4. the parties are contemplating entering a marriage or de facto relationship, are in a de facto relationship or marriage, have separated or divorced; and
5. a legal practitioner gave their client a signed statement confirming the provision of legal advice; and
6. a copy of the legal practitioner’s statement is given to the other party; and
7. it includes a separation declaration (if relevant).

The Family Law Act requires that each party must receive independent legal advice to ensure that they understand their rights and the terms of the agreement. The legal advisors’ advice is summarised in a signed certificate attached to the Financial Agreement.

A Financial Agreement should be reviewed every couple of years or after the birth of a child or other significant event.

When is a Financial Agreement not binding?

A Financial Agreement is binding only if it complies with the requirements of the Family Law Act. The court can void or set aside any agreement that fails to meet the required conditions. The most common reasons for a Financial Agreement being set aside are when a party fails to obtain independent legal advice or when parties draft a Financial Agreement without legal assistance.

Can a Financial Agreement be overturned?

A FA can be overturned by the parties themselves, or through a court order. The couple can create a new FA that explicitly overturns the previous FA. This is the only way to update an existing FA.

Alternatively, the couple can choose to terminate the FA altogether. A termination agreement is only binding and enforceable if both parties sign the agreement after having received independent legal advice as to their rights and the impact of terminating the agreement.

Can the Court set aside a Financial Agreement?

The court can overturn a Financial Agreement if it is not properly drafted and executed. It can also be set aside on the grounds that:

1. A party acted fraudulently;
2. A party signed the Financial Agreement under duress;
3. A party acted unconscionably given the circumstances;
4. A party Intended to defraud a creditor;
5. The Financial Agreement included a superannuation interest that is “unsplittable” or operating under a “payment flag”; or
6. There has been a change in circumstances that makes the Financial Agreement impractical or inequitable and the court recognises that a party to the agreement will suffer hardship if the court does not overturn it.

Separate legal practitioners must review the agreement and represent each party’s interests in the matter. Each party’s lawyer must sign a declaration that they provided legal advice on the Financial Agreement.

Who pays for a Financial Agreement?

While each party must have independent legal advice, there is no legal prescription about who should pay for a Financial Agreement. In practice, one party will usually arrange to have the Financial Agreement drafted.

Why are Financial Agreements so expensive?

Preparing a Financial Agreement is a specialist, time consuming task. A lawyer has to consider a number of factors when drafting a Financial Agreement.

Each lawyer must provide their client with a summary of the law as it applies to their circumstances. They must advise both on the meaning of the terms of the proposed Financial Agreement and what the position would be under the Family Law Act.

Is it worth getting a Financial Agreement?

If your relationship ends, you will almost certainly need to negotiate a property settlement with your former partner. Because many relationships end on less than friendly terms, the parties often have to resort to a stressful, expensive and time-consuming court proceedings to settle their disagreements. Having a Financial Agreement in place will save a couple from spending tens of thousands of dollars on legal fees and court costs.

It is often worth getting a Financial Agreement to reduce uncertainty and increase the potential for a couple to have an amicable separation.

Does a Financial Agreement need to go to court?

A Financial Agreement is an enforceable contract. The only reason you would need to go to court would be if one party is refusing to comply with the terms, or if one of you is seeking to overturn the Financial Agreement.

Takeaway

It may seem pessimistic and even unromantic to prepare a Financial Agreement while you are in a happy relationship. However, it is a practical way of protecting yourself and your partner in the hopes that you will never have to rely on the agreement.

Here to Help

Contact us now for free no-obligation initial telephone advice regarding a Financial Agreement.