A Binding Financial Agreement (sometimes known as a “pre-nup”) is a private agreement that couples are able to enter into to deal with financial and property matters in the event of a relationship breakdown. These agreements could be made in accordance with Part VIIIA or Part VIIIAB of the Family Law Act 1975 (Cth).
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 Binding Financial Agreement.
What is the effect of a Financial Agreement?
If entered into correctly, a Financial Agreement will usually prevent either party to the relationship from making an Application to the Court for property settlement.
For Financial Agreements (or pre-nup) entered into before or during a relationship, it allows the parties of the relationship to determine how to divide their property and financial resources if they separate in the future.
Financial Agreements entered into after a relationship has ended, enables parties one method of dealing with their present problems regarding property. Another option might be to consider Consent Orders.
Regardless of the timing of the Financial Agreement, it provides a chance at resolution of property issues without Court Proceedings.
In certain circumstances a Financial Agreement can be set aside by the Court. Court intervention is sought only when one party alleges that the Financial Agreement is not binding on them. Circumstances where this may arise include where the agreement was obtained by fraud (such as non-disclosure of a material matter) or under a party’s duress, or where the Financial Agreement has not complied with the requirements of the Family Law Act 1975 (Cth).
When can a Financial Agreement be made?
A Financial Agreement can be made either:
For Married couples
- Before entering into a marriage (s90B of the Family Law Act 1975(Cth)) (a “pre-nup”);
- During a marriage (s90C of the Family Law Act 1975(Cth));
- After separation but not divorced;
- After a divorce order has been made in relation to a marriage (s90D of the Family Law Act 1975(Cth));
For 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.
*What is a De facto couple?
A de facto couple or de facto relationship is a relationship between two people that are not legally married to each other, not related by family and have a relationship as a couple living together on a genuine domestic basis. A de facto couple can be between two people of different sex or of the same sex. the relationship has to be mutually exclusive and the following considerations apply:
- the duration of the relationship – minimum two years
- the nature and extent of their common residence
- whether a sexual relationship exists
- the degree of financial dependence or interdependence and any financial support
- the ownership, use and acquisition of Property
- the degree of mutual commitment to a shared life
- the care and support of children
- the reputation and public aspects of the relationship.
When does a Financial Agreement become binding?
- The agreement is signed by all parties;
- Each party was provided with independent and specific legal advice (this means that both parties have to have their own set of lawyers). This legal advice may include advice on the advantages and disadvantages of the proposed Financial Agreement;
- A signed statement about such advice is provided to each party by their lawyer, and a certificate by the lawyer to that effect is attached to the agreement;
- the agreement has not been terminated, and has not been set aside by a court.
Other than where this Agreement is between couples who have already divorced, a Separation Declaration may be needed, in order to demonstrate that the parties separated without the reasonable likelihood of cohabitation being resumed. This declaration is required to be signed by the parties once separation occurs. Only then would the provisions in the Binding Financial Agreement (and/or prenuptial Agreement) be triggered.
Why are Binding Financial Agreements (BFA’s or pre-nup’s) expensive?
BFA’s are costly documents because parties are being bound to financial decisions in the future circumventing a Court process to decide on the parties behalf.
The documents in nature are intended to be binding and need to be fully considered to factor in future cost and/or provision should circumstances change.
BFA’s are well regulated by the Family Law Act, which seeks to have conditions fulfilled in order for the BFA to be enforced.
If a BFA is found to be ambiguous, procured by misrepresentation, fraudulently obtained or non-binding, the Agreement can be set aside by a Court and the lawyer penalized for not fulfilling their legal obligation.
What does a substandard Binding Financial Agreement look like?
Clients who are ‘put-off’ by the high cost of BFA’s often seek legal service providers that will draft a BFA at a minimum cost. The adage that “you get what you pay for” has proven correct in this sense. Case law has proven that BFA’s are regularly being set aside for poor drafting, lack of compliance, failure to disclose. We summarise a few court decisions showing BFA’s being set aside for the following reasons:
- No Certificate of Independent Legal Advice was provided
- Absence of a signed statement by each party for receiving Independent Legal Advice
- Error in Agreement and Certificate
- Delay in service of an Agreement
- No de facto relationship in existence
- Agreements drafted with non-disclosure of assets and/or fraud
- Agreement obtained under duress
- Agreement obtained by unconscionable conduct