Pre-nups in estate planning is a common practice (binding financial agreements). 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:
- 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) the agreement is signed by all parties;
(b) before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement;
(c) either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement);
(d) the agreement has not been terminated and has not been set aside by a court.
Until the Separation Declaration is made, the Financial Agreement will be of no legal force or effect.
What are the costs of a Financial Agreement?
There is no ‘standard’ Financial Agreement.
The costs of a Financial Agreement depend on the following circumstances:
(a) the complexity of the parties’ financial circumstances;
(b) the parties’ intentions;
(c) the advice received by each party and/or the view each party forms about their entitlements;
(d) whether an agreement is reached between the parties or the matter is required to be litigated;
(e) whether Counsel or other experts are required to be engaged;
(f) the length of the negotiations and/or litigation; and/or
(g) the complexity associated with drafting any Financial Agreement.
Having regard to the above circumstances, we regularly provide our clients with an estimate of costs prior to the commencement of their matter and at various stages throughout.
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.
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?