Binding Financial Agreements - the ins and outs
Financial Agreements, sometimes referred to as “BFA’s”, “pre-nup’s” or “post-nup’s”, are the only way to protect your assets from a future divorce or separation and protect you from a lengthy and costly family court dispute.
It is important to note that an Agreement that does not comply with the somewhat stringent requirements of the Family Law Act will be set aside by a court, however properly drafted and executed Financial Agreements will be binding on the parties and immune from court intervention.
What is a Financial Agreement?
A Financial Agreement is a document that sets out what is to happen to your assets and financial resources in the event you and your partner separate.
The agreement can deal with all of your assets or just some if there are particular assets that are important for you to retain, for instance a property you inherited.
Who can have one?
You can enter into a Financial Agreement:
1. Before you marry (known as a Section 90B Agreement);
2. During the marriage (known as a Section 90C Agreement); and
3. After you separate (known as a Section 90D Agreement).
Financial Agreements can also be entered into if you are not, and do intend to, marry. Whether you are in a heterosexual or same sex relationship, you can enter into a Financial Agreement:
1. Before you commence a de facto relationship (known as a Section 90UB Agreement);
2. During a de facto relationship (known as a Section 90UC Agreement); and
3. After the de facto relationship has broken down (known as a Section 90UD Agreement).
What can you include in an agreement?
Your agreement can deal with all or just some of your assets, liabilities, and financial resources.
For instance:
1. you may have inherited property that you wish to always keep in your family;
2. you may have savoured some property from a former marriage that you wish to retain for your children;
3. you want to be certain that you can retain your business interests; or
4. you want to ensure a particular property will remain yours to keep for retirement.
In those instances, you can have an agreement that provides that certain property will remain yours and cannot form part of a family court application. The remaining assets however would be dealt with following the breakdown of your relationship either by agreement or court intervention.
Alternatively, you might want to deal with everything in your agreement including assets you acquire in the future, and avoid court altogether.
The legal requirements
In order to be binding:
1. The agreement must:
a) be in writing;
b) specify under which section of the Act it is made;
c) not deal with matters that were included in a previous agreement that has not been terminated;
2. Before signing the Agreement, each party must be provided with independent legal advice as to the effect of the agreement on the rights of that party and the advantages and disadvantages of entering into the agreement;
3. Each party must be provided with a statement signed by a legal practitioner stating that the advice was given (with a copy to be handed to the other spouse); and
4. The agreement must be signed by both parties.
Having said that, the Act was amended in 2009 to give the court the power to find an agreement to be binding even though one or more of items 2-4 above are not met.
Section 90K
Section 90K provides a list of circumstances where an agreement can be set aside. Broadly speaking, the list refers to the conduct of the parties. They include:
1. Fraud (for instance, if you forget to disclose an asset);
2. Attempting to defraud or defeat a creditor (for instance, transferring property to your spouse under the Financial Agreement prior to bankruptcy);
3. the Agreement is void, voidable or unenforceable (i.e. the agreement must be prepared properly and in accordance with the legislation);
4. Something has happened after the agreement is signed and it is no longer possible or practical to carry out the agreement (for instance, you have agreed to give your partner the Noosa unit, however it was sold before separation). The agreement needs to be worded in a way that allows for such contingencies.
5. You have a child or children after the agreement is signed, and you, your spouse or your child will suffer hardship if the agreement is not set aside;
6. Unconscionable conduct (for instance, giving the agreement to your non-English speaking spouse a day before the wedding);
7. The Agreement deals with a split of the superannuation, there is a payment flag operating on the super interest and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting order;
8. The Agreement covers at least one superannuation interest that is an “un-splittable interest”.
The principles of contract law also apply to Financial Agreements, for instance, if an agreement is uncertain, a court can find it is void.
Court intervention
Because the effect of a Financial Agreement is to remove the court’s ability to divide your assets, they can sometimes be a little trigger happy to set them aside.
Duress
The court set an agreement aside in Moreno after finding that:
1. The husband met the wife in a “mail-order bride” scenario;
2. The wife spoke no English;
3. The husband told her to sign a Financial Agreement, otherwise the relationship would be over;
4. The wife’s lawyer gave her advice that the agreement was disadvantageous to her;
5. The husband bullied the wife and was aggressive; and
6. The wife effectively had no choice but to sign the agreement.
Unconscionable conduct and undue influence
The High Court set aside a Financial Agreement in the matter of Thorne & Kennedy on the grounds of undue influence and unconscionable conduct by the Husband. The court found the Wife was deprived of a free choice when entering into the agreement (undue influence) and that she was at a special disadvantage, which the Husband was aware of and took advantage of (unconscionable conduct). In that instance:
1. The parties met on the internet;
2. The Wife relocated to Australia to marry the Husband;
3. The Husband presented the Agreement to the Wife days before the wedding;
4. There was no time for the Wife to negotiate more favourable terms, although a further agreement was signed after the wedding which was also found not to be binding;
5. The wife’s family had travelled to Australia for the wedding;
6. If she did not sign the agreement, the only outcome would be that she would have to return to her former country.
The court set aside an Agreement in Blackmore & Webber in circumstances where the Agreement was signed 3 days before the wedding. The wife was from Thailand and her Visa was about to expire. She spoke limited English, was totally dependent on the husband and heavily pregnant. The court found the wife was at a special disadvantage, and that the husband was aware of the same and took advantage.
Other instances where the court has set an Agreement aside include circumstances where:
· a party has received no or insufficient legal advice;
· the Agreement was amended after the advice was given;
· reference was made to the wrong section of the Family Law Act;
· the certificate of legal advice referenced the wrong section; and
· the certificate of legal advice referred to the wrong parties.
Will the court uphold the Agreements?
The court will uphold Financial Agreements that comply with the legislative requirements. Section 90G also enables the court to uphold Agreements that don't strictly comply with some of the formal requirements but which nonetheless the court determines should be binding because it would be unjust and inequitable otherwise.
Here are just some examples taken from a 6 month period during 2014/2015 where the court has found Agreements to be binding after an application was made by a party seeking to discard it:
In Piper & Mueller, the de facto husband sought to set aside an Agreement because it was made as a "during de facto relationship" Agreement (known as a 90UC Agreement) and an "in contemplation of marriage" Agreement (known as a 90B Agreement). Ordinarily a Financial Agreement will be made under just one section of the legislation. For instance, if the parties are engaged, they would enter into a 90B Agreement. However, there is no reason why the Agreement cannot be a dual Agreement under these circumstances, and the Full Court of the Family Court agreed with the trial Judge who declared the Agreement to be binding.
In Saintclaire, the Wife applied to the court to have the Agreement set aside due to undue influence and unconscionability. The wife argued that she was suffering from post-natal depression, was in debt, the husband was abusive, and that the husband exerted undue influence upon her when it came to entering into the Agreement. The court initially agreed with her, and set the Agreement aside. The husband appealed and the Full Court disagreed with the trial Judge, finding that undue influence was not established and therefore finding the Agreement to be binding.
In Duncan & Duncan, the Husband argued the Agreement was insufficiently definite, made no provision for a timeframe to comply, was incapable of practical meaning and failed to provide for a frustrating event. However, the court found the Agreement was valid and binding.
In Manner & Manner, the wife argued that an Agreement should be set aside because the husband signed only a faxed copy of the Agreement before they married and later signed the original document after marriage. The Judge found there was no requirement for one original document to be signed and the Agreement was entered into when the faxed copy was signed. His Honour was not satisfied that the husband received the requisite legal advice, however nonetheless declared the Agreement to be binding. The wife had sought to rely on the Agreement early post-separation by asking the husband for money she was to receive under the terms of the Agreement, and on that basis the Judge declined to set the Agreement aside.
Financial Agreements are becoming more common as families want to protect inheritances, partners want to protect their business interests and people entering relationships later in life want to protect their future, all of which could be in jeopardy without an Agreement in place. We regularly act for people in negotiating, drafting, and giving advice on Financial Agreements. If you would like more information, please do not hesitate to contact us