Binding Financial Agreements (the Australian Pre-Nup) & Estate Planning

What is a Financial Agreement?

A Financial Agreement is an agreement made in accordance with Part VIIIA or Part VIIIAB of the Family Law Act 1975 (Cth) (the "Act").

Recent amendments to the Act made on 1 March 2009 now allow for all couples (whether they are married, de facto or same sex) to make a Financial Agreement.

A Financial Agreement can be made either:

Married couples

• Before entering into a marriage (s90B);
• During a marriage (s90C);
• After a divorce order has been made in relation to a marriage (s90D);

De facto couples

• Before entering into a de facto relationship (s90UB);
• During a de facto relationship (s90UC); and
• After the breakdown of a de facto relationship (s90UD).

Financial Agreements allow the parties to determine how the property and financial resources of either or both parties will be dealt with in the event of separation and can also set out maintenance rights of either party in the event of separation.

Couples who have children from a previous relationship should consider making a Financial Agreement to protect their assets in the event of the breakdown of the marriage or de facto relationship.

When does a Financial Agreement become binding?

A Financial Agreement will be binding upon the parties if it complies with the requirements set out in sections 90G and 90UJ of the Act. These requirements are:

• The agreement must be signed by all the parties;
• The agreement must contain a statement of each party that he or she has been provided independent legal advice from a legal practitioner, before the agreement was signed by him or her, as to the effect of the agreement and the advantages and disadvantages (at the time the advice was provided) to the parties making the agreement;
• An Independent Legal Advice Certificate must be annexed to the agreement stating that independent legal advice has been provided;
• The agreement must not have been terminated and must not have been set aside by the Court; and
• After the agreement is signed, the original agreement is given to one of the parties and a copy is given to the other party.

Pursuant to section 90DA and 90UF of the Act, a separation declaration is required for certain provisions of the Financial Agreement to take effect.  Until the separation declaration is made, the Financial Agreement will be of no force or effect.

 What is the effect of a Financial Agreement?

A Financial Agreement will prevent either party to the relationship from making an Application to the Family Court for the division of property.  It also allows the parties of the relationship to determine how to divide their property and financial resources in the event of separation.

 What are the benefits of making a Financial Agreement?

Some of the benefits of making a Financial Agreement are as follows:

• A Financial Agreement can avoid conflict and costly litigation in the event of separation;
• There is no requirement to attend Court when making a Financial Agreement;
• A Financial Agreement does not need to be lodged with the Court for approval; and
• Your wishes will be carried out in the event of incapacity or death.

 Estate Planning

Financial Agreements are useful in estate planning especially if either or both parties have children from a previous relationship and they want to protect their assets for their children in the event of incapacity or death.

By entering a Financial Agreement, each party to the relationship can decide who will receive their assets in the event of incapacity or death. 

Pursuant to section 90H and 90UK of the Act, a Financial Agreement or Part VIIIAB Financial Agreement will continue to operate despite the incapacity or death of a party to the agreement and will be binding on the legal personal representatives of that party's estate (executors, administrators and attorneys).

 When can a Financial Agreement be set aside by the Court?

A Financial Agreement may be set aside by the Court if the Court is satisfied that:

• The agreement was obtained by fraud (includes non-disclosure of material matter);
• If a party to the agreement entered into the agreement:
  • for the purpose of defrauding or defeating a creditor or creditors of the party; or
  • with reckless disregard of the interests of a creditor or creditors of the party;
• If a party (agreement party) to the agreement entered the agreement:
  • for the purpose of defrauding another person who is a party to a de facto relationship with the other party to the agreement; or
  • for the purpose of defeating the interests of that other person in relation to any possible or pending application under s90SM or declaration under s90SL in relation to the other de facto relationship; or
  • with reckless disregard of those interests of that other person.
• The agreement is void, voidable or unenforceable;
• It is impracticable for the agreement or part of the agreement to be carried out in light of circumstances that have arisen since the agreement was made;
• There has been a material change in circumstances and a party to the agreement will suffer hardship if the Court does not set aside the agreement;
• If a party to the agreement has acted unconscionable at the time of making the agreement.

 Not set and forget

The underlined words, there has been a material change in circumstances and a party to the agreement will suffer hardship if the Court does not set aside the agreement, make it clear that a Binding Agreement needs to be reviewed each time you review your will.  By the way, have you done that lately?