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financial agreements


Contact Armstrong Legal:
Sydney: (02) 9261 4555
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Brisbane: (07) 3229 4448
Canberra: (02) 6288 1100

Kerry White

A financial agreement is a written agreement between two or more people that is compliant with Part VIII or VIIIAB of the Family Law Act 1975 (Cth).

Financial agreements are similar to the well-known pre-nuptial agreement, but are signed before, during or after a marriage. Under Section 90D of the Family Law Act, financial agreements cover the following:

  • division of property, finances and debts after a marriage breakdown
  • superannuation
  • spousal maintenance
  • other incidental issues.

For financial agreements to be legally binding, both parties must have signed the agreement and have received independent legal and financial advice before signing.

The different types of financial agreements are:

  • In contemplation of a marriage (s90B);
  • In contemplation of a de facto relationship (s90UB);
  • During a marriage (s90C);
  • During a de facto relationship (s90UC);
  • After divorce (s90D); or
  • After a breakdown of a de facto relationship (s90UD).

A financial agreement outlines the parties' agreement as to their financial arrangements. Financial Agreements are intended to avoid the need for the parties to go to court in respect of property matters.

A financial Agreement may also include the parties' agreement on other issues such as maintenance, claims on the other party's estate after death and adult child maintenance.

Will our financial agreement be binding?

A financial agreement is not a court order. It is an agreement that is governed by statute. Equitable contractual principles which may be used to set aside the agreement have also been incorporated into the legislative provisions governing financial agreements (s90KA and s90UN).

A court is required to determine whether a financial agreement or a termination agreement is valid, enforceable or effective according to contractual principles of law. A court may also grant contractual remedies. In light of the changes to the legislation under the Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009, in relation to enforceability where parties have not strictly complied with legislative requirements, the court may consider whether it was unjust and inequitable for the agreement not to be binding upon the parties - see s90G(1A), s90J(2A), s90UJ(1A) and s90UL(2A).

Financial agreements vs. consent orders

When finalising a property settlement agreement you need to choose between consent orders and a financial agreement. Points to consider when choosing include:

  • The time at which the agreement is reached (eg you cannot file consent orders prior to a wedding, when the parties are contemplating a marriage);
  • The requirement for independent financial advice with a financial agreement
  • That a financial agreement can incorporate a superannuation agreement pursuant to s90MH and s90MHA (see Family Law Legislation Amendment (Superannuation) Act 2001);
  • Recording of the agreement. For example, if a financial agreement is destroyed or lost by a party, there is no copy kept on a central register or court file, unlike consent orders; and
  • The requirements for full and frank financial disclosure.

The other factor that is significant is that financial agreements are a relatively new addition to the remedies available in family law, only having been available since 2001. Therefore there has only been a relatively short history of challenges to these agreements in the court and the law is not necessarily well established on how the court will deal with various scenarios financial agreements will throw up. It has already been the case that the law has been amended to deal with unexpected results.

In contrast, consent orders have had quite a long history in the court and have well established law and procedures which provide greater certainty.

Other factors to consider

In the case of Blackmore & Webber [2009] FMCAfam 154, Bender FM set aside a financial agreement due to the "illegitimate pressure" exerted by the husband at the time of signing the agreement. In this case, the husband had threatened the parties' wedding (in 5 days time) would not go ahead if the wife refused to sign the financial agreement. The wife was pregnant and shortly due to fly to Thailand to see her family whose cultural expectations were that she would be married when she arrived. Additionally, the wife's visa was due to expire shortly, so if she did not marry the husband, she might not have been able to return to Australia.

Financial agreements require independent legal advice. If the other party is overseas, it may be difficult for an Australian lawyer to be found without assistance (in Murphy & Murphy [2009] FMCAfam 270 it was found that an agreement certified by a foreign lawyer was void).

The question of referrals, who pays the second independent lawyer's bills and how much time is provided between giving the other party a financial agreement and the wedding may all prove relevant to the issue of duress.

Are financial agreements enforceable?

A financial agreement is not a court order. It is an agreement that is governed by statute. Equitable contractual principles which may be used to set aside the agreement have also been incorporated into the legislative provisions governing financial agreements (s90KA and s90UN).

A court is required to determine whether a financial agreement or a termination agreement is valid, enforceable or effective according to contractual principles of law. A court may also grant contractual remedies. In light of the changes to the legislation under the Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009, in relation to enforceability where parties have not strictly complied with legislative requirements, the court may consider whether it was unjust and inequitable for the agreement not to be binding upon the parties - see s90G(1A), s90J(2A), s90UJ(1A) and s90UL(2A).

Cautionary notes about financial agreements

Don't think of it as a mere formality. Parties signing a financial agreement before marriage (s90B) or a de facto relationship (s90UB) might not exercise due caution as they may see the agreement as a mere formality (as they are not planning to separate). Whilst it is not necessary to assign future ownership of every item of property, parties should be encouraged to consider how all property owned by either party or accumulated jointly during the marriage or de facto relationship will be divided in the event of separation.

Plan carefully and get good advice. If not assigning all property in the financial agreement you need to be careful of unintended consequences. For example if one person wants to retain a piece of real estate and the agreement only deals with that item, if the balance of the property is to be divided by a court the court will have regard to the piece of real estate in working out what is a ‘just and equitable' result and may order that the other party gets all other property up to and equal to the value of the real estate. This may defeat the purpose of the agreement when it was intended that all other items would be shared fairly and the real estate was not to be considered. Careful planning and advice is necessary to avoid such unintended consequences.

Don't wait until just before the wedding. People should exercise caution involving financial agreements when a wedding is soon due to take place. Given the recent case law which says the threat of abandoning an impending wedding can be a form of duress, such agreements may be set aside by a court. It may be more appropriate to draft a s90C (during marriage) financial agreement for the parties to sign after the wedding.

Check the agreement carefully. Errors or omissions in financial agreements are often not discovered until many years after they were executed and the unfairness or unintended consequences may be made worse by the passing of time since execution.

Death of a party to a financial agreement

Unless a financial agreement is specifically revoked, it remains binding even after the death of a party.

Under s90H and s90UK, a financial agreement will bind (or can benefit) the estate of a deceased party to the agreement, even though this is not explicitly stated in the agreement.

There is no requirement for parties to sign separation declarations if married parties divorce or die - s90DA(1A) or one or both de facto parties die - s90UF(2).

In NSW, it is possible to include a deed of release in a financial agreement, under the Succession Act 2006 (NSW). By including such a release, the parties will be unable to make a claim against the other's estate if inadequate provision was made for them in the deceased person's will. The Supreme Court will need to approve the release before it is binding, however the release is generally considered sufficient evidence of a party's intention to give up the right to make such a claim. In other states, an agreement to relinquish a party's rights under any family maintenance legislation would be considered a non-binding statement of intention only.

Financial agreements and maintenance

Pursuant to s90E and s90UH, parties must assign a numeric value to any amount specified as maintenance. For this reason, if parties wish to agree not to seek or receive spousal maintenance from each other, it is usual practice to insert that each party will pay to the other the sum of $1.00 as maintenance, to avoid argument about whether .00 can be considered an "amount" or "value".

Despite provisions that state the parties will not claim spousal maintenance from each other, the court has the power to override that provision in the agreement and make orders in relation to spousal maintenance where one party obtains a means tested benefit (eg Centrelink payment) - s90F and s90UI. These are public policy provisions which prevent parties from contracting out of making appropriate spousal maintenance payments.

Financial agreements and third parties

When drafting a financial agreement, remember that the agreement can include third parties such as creditors, family members, family companies and trusts.

Also, make enquiries about whether there are any concurrent relationships and consider how the agreement may affect those third party interests.

It is important to consider the wisdom and cost of involving third parties to financial agreements because each of the other parties requires independent legal advice in order for the agreement to be valid and enforceable.

Setting aside a financial agreement

A financial agreement can be set aside by a court under s90K or s90UM for the following reasons:-

  • Fraud. (including failure to disclose a material matter) - s90K(1)(a) and s90UM(1)(a)
  • Creditor's interests. If the financial agreement was intended to defraud or defeat a creditor or was entered into with reckless disregard of a creditor's interests - s90K(1)(aa) and s90UM(1)(b)
  • Void or unenforceable. http://www.austlii.edu.au/au/legis/nsw/consol_act/ssma1996242/ If the financial agreement is void, voidable or unenforceable, due to mistake, misrepresentation, public policy, uncertainty, incompleteness, duress, undue influence, unconscionability, breach, waiver, estoppel - s90K(1)(b) and s90UM(1)(c)
  • Impractical. If the financial agreement becomes impracticable due to a change in circumstances - s90K(1)(c) and s90UM(1)(f)
  • Hardship. If there is a material change in circumstances in relation to a child, and the financial agreement would otherwise cause hardship - s90K(1)(d) and s90UM(1)(g)
  • Unconscionable conduct when the financial agreement was entered - s90K(1)(e) and s90UM(1)(h)
  • Superannuation. No reasonable likelihood that a flag (in relation to superannuation) will be terminated - s90K(1)(f) and s90UM(1)(i)
  • The financial agreement contains a superannuation interest that cannot be split - s90K(1)(g) and s90UM(1)(g)
  • Other interests. To protect the interests of parties in other relationships with a party signing the financial agreement - s90K(1)(ab) and s90UM(1)(c) and (d)

Terminating a financial agreement

A financial agreement can be terminated by the parties either signing a new financial agreement which includes a provision terminating the old agreement, or signing a written document specifically terminating the agreement (a termination agreement) pursuant to s90J or s90UL.

Arguably, a party can claim that termination of a financial agreement was implied under equitable contractual principles, but for certainty, an explicit termination agreement is preferable.

The legislation does not specifically recognise "sunset clauses" for automatic termination if a certain event occurs or does not occur. If the parties seek that their agreement be terminated at a certain time, such as after the birth of a new child, remarriage, sickness or unemployment of a party or affair, the agreement should be drafted in divided parts, with additional clauses to apply (such as the parties automatically submitting to the court's jurisdiction in relation to property settlement) if a certain event does or does not occur.

Why you need independent legal advice

A financial agreement is not registered with a court. It is intended to be a binding and enforceable agreement between the parties only.

Given that the court does not review and confirm a financial agreement before it is entered into by the parties (as the court will do if parties file consent orders to finalise their agreement), there are stringent requirements about parties receiving independent legal advice before they sign a financial agreement and requirements set down in the Family Law Act 1975 (Cth) about how a financial agreement should be created and recorded.

History of financial agreements

1975: Introduction. Financial agreements were introduced to the Family Law Act 1975 (Cth) in 2000, allowing parties to set out how their property would be divided in the case of a breakdown of their marriage. Effective from 1 March 2009, amendments to the FLA provided de facto couples with the ability to enter a financial agreement. Prior to this change, de facto couples entered into domestic relationship agreements under the various state laws.

2008: Validity tested. Until 2008, the courts generally interpreted the legislative requirements in relation to financial agreements to give effect to the parties' intentions as expressed in the agreement. In the landmark decision of Black & Black (2008) FLC 93-357, the full Court of the Family Court ruled a financial agreement was not in fact binding if it did not strictly comply with the legislative requirements. Every form had to be correct and every certificate properly signed by all the required parties, otherwise the validity of a financial agreement could be called into question.

2009: Rules amended. The latest amendment to the law came in the Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009 which became operative on 4 January 2010. In order to respond to the situation caused by the Full Court's decision in Black & Black, the law now says that despite non-compliance with the required formalities, a court can declare a financial agreement binding if it is satisfied that it would be unjust and inequitable if the agreement were not binding - s 90G(1A)(c).



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