Some helpful advice if you are considering entering into a Financial Agreement.
Financial Agreements under the Family Law legislation are not simple agreements, especially for same-sex couples. There are certain requirements which must be complied with if the agreements are to be binding. If these requirements are not properly dealt with the Court will have no hesitation in overturning a Financial Agreement should either you or your partner in the future not wish to be bound by its terms.
Solicitors are required to advise the parties entering into a Financial Agreement on the advantages and disadvantages of entering into those agreements. The parties sign a certificate attached to the agreement that they have received this independent legal advice. The solicitors also sign certificates stating that they did provide the advice required prior to the parties signing the agreement.
The advice not only deals with the terms of the agreement itself but also provides a full advice on the legislation under the Family Law Act and the positions the parties would be in if they had not entered into the agreement.
Agreements are drafted to suit the particular circumstances of each case. The agreements come under different sections of the Family Law Act depending on whether the parties are in a de facto relationship and wish to remain in that relationship, if the parties are in a de facto relationship and intend to marry, an agreement during a marriage and also an agreement after a divorce setting out the terms of a property settlement dealing with the financial issues arising from the breakdown and the divorce in the marriage
When drafting the agreement and to enable a solicitor to provide the required advice it is necessary to obtain detailed instructions of the relationship, contributions made by the parties at the commencement of the relationship and contributions made by the parties during the relationship. Without these instructions, a full and proper advice cannot be provided.
Once a client’s instructions have been obtained in regard to the relationship and contributions it is then necessary to obtain the details instructions in regard to the wishes of the parties in regard to assets they wish to maintain full and legal control over and those assets which are to be joint assets. Instructions are also required in regard to superannuation, estate rights and spousal maintenance should the relationship breakdown or if there is a death of one of the parties.
Once the agreement has been drafted setting out the parties’ joint instructions to their respective solicitors it is then necessary to provide a detailed advice on the terms of the agreement reached and on the advantages and disadvantages of entering into that agreement.
Unless all these steps are carried out and proper advices given there is a strong possibility that the agreement would be overturned by the Family Court if a party upon separation wishes to set aside the agreement and seek a greater property settlement than that set out in the agreement itself.
It is necessary for both parties to provide schedules setting out their present assets, liabilities and resources including superannuation. The updated schedules are required to be attached to the Financial Agreement itself.
It is to be hoped that the parties agree on the values of the items set out in the schedules without requiring formal valuations to be carried out. The solicitor acting for the other party is required to give the advices that have been mentioned.
It is necessary that the other party obtains an advice from a competent family lawyer and receives a detailed advice in writing. There are many cases where the agreements have been set aside when the partner has not obtained that detailed advice.
WHAT ARE THE ADVANTAGES OF ENTERING INTO A POST-NUP, PRE-NUPTIAL AND FINANCIAL AGREEMENTS?
- A financial agreement does not become a court record. There is no requirement for filing the financial agreement in any court and in particular, there is no requirement for filing a financial agreement in the Family Court.
However, it is necessary that the original agreement is given to one party and that a true copy given to the other party. It is also necessary that the financial agreement is stored with a person’s important documentation. The agreement does not come into effect until sometime in the future when a separation occurs and this may not be for a considerable number of years. Therefore there is an obligation on the parties to maintain the financial agreement in case it does become relevant at some future time.
- The parties can incorporate spousal maintenance terms into their financial agreement. The parties may wish to define the spousal maintenance to be paid should there be a breakdown in their relationship and should the financial agreement come into force. Although the financial interests of the parties are clearly defined in the agreement a party in certain circumstances could apply for spousal maintenance after separation even if there have been terms included in the financial agreement preventing the party from applying.
It is advisable to define clearly the spousal maintenance to be paid should a separation occur.
However the parties should be aware of the provisions of section 90F of the Family Law Act and other provisions where there is a de facto relationship. These provisions state:-
- No provision of a financial agreement excludes or limits the power of a court to make an order in relation to the maintenance of a party to a marriage or a de facto relationship if the court is satisfied that, when the agreement came into effect, the circumstances of the party were such that taking into account the terms and effect of the agreement, the party was unable to support himself or herself without an income tested pension, allowance or benefit.
- The assessment of the ability of a party to support themselves without an income tested pension benefit takes place not when the agreement is made but when it takes effect.
WHAT ARE THE DISADVANTAGES OF ENTERING INTO A BINDING FINANCIAL AGREEMENT
Disadvantages of entering into a financial agreement:
- The parties to a financial agreement clearly define what will happen to their assets and liabilities if a separation should occur in their relationship. This separation may occur many many years after the financial agreement is entered into. The terms of the financial agreement only come into effect once that separation occurs. There could be substantial changes in the person’s financial positions during the years after the agreement is entered into. Although the agreement may be fair and equitable at the time the agreement was entered into it may not be fair and equitable many years later when the terms of the agreement come into effect. This would mean that a party may suffer severe financial hardship because the terms of the agreement are not relevant at the time the separation occurs. There could be substantial changes in the assets and liabilities of the parties or a party could make substantial contributions towards the acquisition and improvement of assets but would gain no financial interest in the assets although the value of the assets has subsequently increased. A party could make substantial contributions towards the acquisition and improvement of the assets but gain no interest in the increased value of such assets at a later date.
- The parties are required to obtain specific and detailed legal advice prior to and at the time of entering into a financial agreement. How can one party ensure that the other party obtains proper legal advice? Even though one party does obtain the required legal advice the other party may not obtain legal advice that is sufficient and therefore the agreement can be set aside. It is difficult to ensure that the other party does obtain the required legal advice.
- As stated earlier, agreements are not required to be filed or lodged with any court. If the parties lose their agreements and if the solicitors’ copies cannot be obtained then the parties will not be able to enforce the provisions of that agreement.
- There is a large cost in ensuring that the parties have been given the proper legal advice and in ensuring that the document has been properly drawn. Consent Orders at the time of separation are more binding than financial agreements because they are more certain. There is always the uncertainty of entering into a financial agreement of having that agreement overturned at some later date.
- A party must ensure that children born after the agreement has been signed are taken into consideration. Under the terms of the Family Law legislation, a party who has the care of children could gain substantial interests in the net matrimonial assets. However, if parties enter into an agreement and do not cater for children being born at some subsequent time then they may be financially disadvantaged after a separation in their relationship.
- Full disclosure is required by both parties of their assets and liabilities. If at a subsequent time after the signing of the agreement or upon a separation a party becomes aware of other assets owned by the other party and not disclosed in the agreement then the agreement may be set aside.
BINDING FINANCIAL AGREEMENTS MAY BE SET ASIDE UNDER THE PROVISIONS OF THE FAMILY LAW ACT
The Family Law Act 1975 provides that a financial agreement will “end” in two circumstances. It can be either “terminated” under s90J or 90UL or “set aside” under s90K or 90UM. Termination is an action of the parties but setting aside is an action of the court. A court may set aside an agreement if it is “void, voidable or unenforceable”. If this ground is used, the parties or one of them may already consider that the agreement no longer operates. A party may apply to the court for an order that a financial agreement is set aside in circumstances where that party already believes that the contract has been rescinded, breached or is otherwise unenforceable.
- Sections 90J and 90UL of the Act specifically provides that parties to a financial agreement may only terminate it by:
- Including a provision to that effect in another financial agreement, or
- Making a written agreement known as a ‘termination agreement’.
- Financial and termination agreements can be set aside under s90K or 90UM:-
if, and only if, the court is satisfied that:
(a) the agreement was obtained by fraud (including non-disclosure of a material matter); or
(aa) a party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party; or
(ab) a party (the agreement party ) to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or
(ii) for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or
(iii) with reckless disregard of those interests of that other person; or
(b) the agreement is void, voidable or unenforceable; or
(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or
(e) in respect of the making of a financial agreement–a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
(f) a payment flag is operating under Part VIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or
(g) the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB
In some respects, financial agreement is easier to set aside than consent orders and in other respects, they are harder.
Financial agreement is enforceable after the death of a party to the agreement. Sections 90H and 90UK provides that a financial agreement:
“continues to operate despite the death of a party to the agreement and operates in favour of, and is binding on, the legal personal representative of that party”.
ENDING A FINANCIAL AGREEMENT – TERMINATION AND SETTING ASIDE
The parties may terminate a financial agreement by:-
- Entering into a termination agreement or;
- Entering into a new financial agreement which includes specifically terminating the previous agreement.