The question of financial arrangements often arises when couples start a relationship or split up. In Australia, Financial Agreements offer a way to formalise financial arrangements, but are they enforceable?. This article explores the enforceability of Financial Agreements, requirements for their validity, and how to ensure that they are enforceable.
How are Financial Agreements enforceable?
Financial Agreements are designed to clarify financial arrangements during or after a de-facto relationship or a marriage. Strict legal requirements set out in the Family Law Act 1975 must be met for a Financial Agreement to be enforceable in Australia.
The enforceability of a Financial Agreement primarily depends on the following factors:
No fraud or coercion
A Financial Agreement must be entered into voluntarily to be legally binding, An agreement may be invalidated if one party was pressured, coerced, or misled into signing it. Fraudulent behaviour (e.g. providing false information) can also render the agreement unenforceable.
Compliance with formalities
A Financial Agreement must be properly drafted, meet the requirements set out in the Family Law Act 1975, and be signed by both parties. It must include statements signed by the parties’ solicitors confirming that both parties have received independent legal advice. Ensuring these formalities are met minimises the risk of the agreement being challenged later.
Financial disclosure
Complete transparency of each party’s financial circumstances is essential. Each must fully disclose their assets (including their superannuation entitlements), liabilities, income, and other relevant financial details. Omitting or misrepresenting information can result in significant disputes and undermine the agreement’s validity.
Fairness and equity
Although a Financial Agreement does not have to be strictly “fair” to be enforceable, courts are more likely to uphold agreements that do not cause either party extreme hardship. Ensuring that the agreement’s terms are reasonable and equitable can strengthen its enforceability.
Proper legal advice
Independent legal advice is essential for both parties to a Financial Agreement. Each party must engage their own lawyer, whose roles include explaining the terms of the agreement, how it affects the parties’ legal rights, and whether it is in their best interest to enter into it. Failure to obtain or document proper legal advice is one of the most common reasons for a court to set aside a Financial Agreement.
When is a Financial Agreement likely to be enforced?
Financial Agreements drafted carefully and in compliance with all legal requirements are more likely to be upheld.
Future-Proofing
Including provisions for life changes (e.g. a significant increase in income and having children) can help ensure the agreement ‘s ongoing relevance.
Formalised terms
Courts are more likely to enforce agreements that clearly outline both parties’ responsibilities and financial arrangements.
Independent advice
Including comprehensive legal advice for both parties to an agreement increases its resilience.
What can invalidate a Financial Agreement?
Following are some factors that could jeopardise an agreement’s enforceability:
Significant changes in circumstances
The court may set aside a Financial Agreement if, due to unforeseen circumstances, enforcing it would lead to undue hardship for one of the parties. Changes such as sudden unemployment, serious health issues, or the need to provide a child with long-term care, can make the agreement unfair or unworkable.
Failure to meet legal requirements
The validity of a Financial Agreement can be challenged if fails to comply with the formal requirements set out in the Family Law Act 1975. Examples include where an agreement is not properly signed and documented, or if one party does not receive independent legal advice.
Material misrepresentation or fraud
Full disclosure is a legal obligation when creating a Financial Agreement, and failing to meet this standard can undermine the agreement’s enforceability. If one party intentionally hides assets or provides false financial information, they risk the agreement being invalidated.
Unconscionable conduct
Unconscionable conduct refers to actions that exploit the vulnerability of one party. Courts will not uphold agreements where there is sufficient evidence that, for example, a party is not given sufficient time to review an agreement’s terms, or is pressured into signing it.
Agreement found void, voidable, or unenforceable
A Financial Agreement may be declared void if it contravenes existing laws or public policy, or is found to contain contradictory or ambiguous clauses.
Additional considerations for enforceable Financial Agreements
Creating an enforceable Financial Agreement requires attention to detail and careful planning. Following are additional measures to strengthen your agreement’s enforceability..
Customised Clauses
Generic or template agreements often fail to account for the parties’ unique financial and personal circumstances. Clarity and flexibility can be enhanced and the likelihood of disputes reduced by customised clauses tailored to specific contingencies and needs.
Periodic Review
A Financial Agreement should not remain static. Periodically reviewing and updating the agreement after significant life events such as marriage, childbirth, or a career change, helps to maintain the agreement’s relevance over time.
Expert Legal Drafting
An experienced family lawyer can ensure that a Financial Agreement accurately reflects the intentions of both parties and complies with legal requirements, making it more likely to withstand scrutiny.
Tips for couples considering a Financial Agreement
Following are tips to help ensure a Financial Agreement’s enforceability.
Start early
Initiating discussions about a Financial Agreement well before significant life events (such as cohabitation or marriage) gives both parties ample time to negotiate terms and seek independent legal advice. Early planning ensures that all legal requirements are met and reduces the risk of rushed decisions.
Maintain transparency
Both parties should supply a comprehensive account of their financial situation, including all assets (including superannuation entitlements), liabilities, and income sources. This openness fosters trust and ensures the agreement is legally sound.
Plan for contingencies
Incorporating provisions for future contingencies, such as changes in income or the birth of children, can make the agreement more adaptable and reduce the likelihood of disputes.
Avoid rushing the process
Rushing into a Financial Agreement can lead to allegations of coercion or oversights.
Seek independent legal advice
Each party must obtain independent legal advice to avoid conflicts of interest, meet legal requirements, and to ensure that they understand the agreement’s terms and implications.
Here to Help
Contact us today to draft a Financial Agreement tailored to your specific needs. We ensure that your agreement complies with all legal requirements, giving you confidence that it will be upheld if challenged.
