What is a binding financial agreement?
The Family Law Act 1975 (Cth) (Family Law Act) provides for parties to a marriage or de facto relationship to enter into a binding legal agreement about the financial arrangements should their marriage or de facto relationship breakdown. Such an agreement is simply a contract between a couple setting out their agreement for financial separation in the event of a breakdown of their marriage or de facto relationship.
In Western Australia Part VIIIA of the Family Law Act deals with financial agreements for married couples, and Part 5A Division 3 of the Family Court Act 1997 (WA) deals with financial agreements for de facto couples. Part VIIIAB Division 4 of the Family Law Act 1975 contains similar provisions for de facto couples in other States and Territories.
A couple can make a financial agreement before, during or after a marriage or de facto relationship. Such agreements can cover:
- the division of property and finances (including superannuation entitlements) after the breakdown of a marriage or a de facto relationship;
- financial support or maintenance of one party by the other after the breakdown of a marriage or a de facto relationship; and
- any incidental issues.
For a financial agreement to be legally binding, it must be signed by both parties and each of them must have received independent legal advice from a lawyer before signing on the effect of the agreement and its advantages and disadvantages to the party at the time. In addition, the agreement should attach a certificate signed by the lawyers providing the independent legal advice stating that independent legal advice was provided to that party.
What are the Advantages of a Binding Financial Agreement?
There are many reasons why a couple would want to enter into a financial agreement, but most commonly, the parties want to protect property that they owned before the relationship began, including business assets, gifts or inherited property and by recording it as such. In this way, they can distinguish between personal and jointly owned assets. They may also want to identify and protect income or assets that they may receive through future inheritances or via a trust or even to assign debt, such as business loans or mortgages, to the appropriate party to avoid both sharing debt liability.
Financial agreements are also not uncommon in circumstances where one or both of the parties have been previously divorced or separated or if they have children from a previous relationship and they want to protect their assets to ensure that they are inherited by their children after their death.
The parties may also seek to reduce conflict and avoid a costly dispute and court proceedings if the relationship fails. It is not unusual for a relationship to fail because the parties do not agree about finances or financial management. Accordingly discussing these issues and resolving how to manage them can avoid disagreement later.
Are there and Disadvantages to having a Binding Financial Agreement?
Sometimes couples are reluctant to discuss the possibility of a separation or divorce at the beginning of their relationship. However, a financial agreement can be entered into at any time, even after the parties have been together for some time.
A couple can always agree to the division of their property and assets and maintenance after the relationship has broken down and the Family Law Act makes provision for the court to do so where they cannot agree.
The Family Law Act does give the court power to declare a financial agreement invalid, and set it aside in a number of circumstances.
Such circumstances include:
- where it was obtained by fraud or duress;
- a party failed to disclose relevant matters’ a party has acted unconscionably;
- where the objective of the agreement was to defeat the interests of other parties including creditors;
- where circumstances have arisen which make it impracticable for the agreement to be carried out; or
- since making the agreement, a material change in circumstances has occurred relating to the care and welfare of a child and, as a result of the change, the child or a party to the agreement will suffer hardship if the court does not set the agreement aside.
- Further, any provision in a financial agreement that seeks to exclude or limit maintenance payments can be ineffective if at the time of the agreement coming into effect the proposed recipient is unable to support himself or herself.
If a financial agreement is set aside the court can make orders for property settlement and maintenance in accordance with the principles set out in the Family Law Act.
Seek legal advice
You shouldget legal advice before deciding what to do. A lawyer can help you understand your legal rights and responsibilities, and explain how the law applies to your case. A lawyer can also help you to try to reach an agreement with the other party without going to Court.
(Disclaimer: The material in this article is of a general nature and intended for information only. It is not intended to be comprehensive and does not constitute legal advice. Any person with a specific legal issue should consult a lawyer.)