A Financial Agreement (commonly referred to as a Binding Financial Agreement or “BFA”) is a legally binding agreement between the two parties of a relationship seeking to finalise certain financial matters that may arise in the event of a breakdown of the relationship.
Ordinarily these agreements can cover, inter alia:
- the division of the joint and separate assets, liabilities and financial resources of each party (including the splitting of superannuation);
- the payment of maintenance (financial support) to a party; and
- any other incidental financial issues.
A financial agreement may deal with all the assets, liabilities or financial resources the parties, or it may only deal with specific assets, liabilities or financial resources, depending on the specific circumstances of a matter.
A financial agreement can be entered into at any time during the course of a relationship, including:
- before marriage (pre-nuptial agreement)
- during the course of a de facto relationship (co-habitation agreement)
- during the course of a marriage
- after separation or divorce (separation agreement).
By entering into a pre-nuptial financial agreement the parties could agree to forgo the opportunity to seek a property distribution, and if relevant, a claim for spousal or de facto maintenance, from the Court.
However, if certain legal requirements are not strictly complied with in the preparation and execution of a financial agreement, a party may have the ability to apply to the Court to set aside the financial agreement.
The legal requirements that are required to be complied with to ensure that a financial agreement is legally binding, are:
- the execution of the agreement by all parties;
- the provision of independent legal advice to each party prior to the execution of the financial agreement about the effect of the agreement on the rights of that party, and about the advantages and disadvantages of entering into the agreement from a legal practitioner
- the provision of a signed statement to each party by each legal practitioner stating that the requisite advice has been given.
Prenuptial Financial Agreements
A financial agreement entered into by parties that are contemplating marriage is more commonly known as a prenuptial agreement (‘prenup’).
The primary benefit of a prenuptial agreement is the ability to determine how the joint and separate assets, liabilities and financial resources of the relationship will be distributed in the event the marriage breaks down, preventing any potential future financial dispute resulting in litigation.
Pre-nuptial agreements are a particularly useful asset protection tool for a party who holds significant wealth prior to entering into the marriage – or in relation to subsequent marriages/relationships and to quarantine assets for claims by the other party, it can assist with protecting assets for future generations.
Cohabitation Financial Agreements
A financial agreement entered into during the course of a de facto relationship is more commonly known as a co-habitation agreement. They are available to both same-sex and heterosexual de facto couples.
The primary benefit of a co-habitation agreement is the ability to determine how the joint and separate assets, liabilities and financial resources of the relationship will be distributed in the event the relationship breaks down, preventing any potential future financial dispute resulting in litigation.
Similar to prenuptial agreements, co-habitation agreements are a particularly useful asset protection tool for a party who holds significant wealth prior to entering into the relationship.
It is important for heterosexual couples to remember that a co-habitation agreement will become void upon the marriage of the parties. If you have a co-habitation agreement and are planning on getting married, it is crucial to obtain legal advice as to whether a new financial agreement will need to be entered into in order to reflect your new circumstances.
Separation Agreements
A financial agreement entered into after the breakdown of a relationship has occurred is more commonly called a separation agreement. They are available to both married couples (either before or after the parties are divorced) and same-sex and heterosexual de facto couples.
A separation agreement is ordinarily the result of negotiation between the parties and their legal representatives seeking to come to an amicable resolution to finalise the distribution of assets, liabilities and financial resources of a relationship, and if relevant the maintenance of either party, upon the breakdown of the relationship, rather than engage in a costly litigation.
By entering into a financial agreement the parties agree to forgo the opportunity to seek a property distribution, and if relevant, a claim for spousal or de facto maintenance, from the Court.
Setting Aside Financial Agreements
There is limited scope under the Family Law Act 1975 that enables a party to seek to have a financial agreement set aside – This is very different to where a matter has been concluded by consent orders.
In respect of a financial agreement relating to a marriage, the court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
- the agreement was obtained by fraud (including non-disclosure of a material matter)
- a party to the agreement entered into the agreement:
- for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party
- with reckless disregard of the interests of a creditor or creditors of the party.
- a party to the agreement entered into the agreement:
- for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or
- for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM of the Act, or a declaration under section 90SL of the Act, in relation to the de facto relationship
- with reckless disregard of those interests of that other person.
- the agreement is void, voidable or unenforceable
- in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out
- since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child, a party to the agreement will suffer hardship if the court does not set the agreement aside
- in respect of the making of a financial agreement–a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable
- a payment flag is operating under Part VIIIB of the Act on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part
- the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB of the Act.
In respect of a financial agreement relating to a de facto relationship, the court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
- the agreement was obtained by fraud (including non-disclosure of a material matter); or
- a party to the agreement entered into the agreement:
- for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party
- with reckless disregard of the interests of a creditor or creditors of the party.
- a party to the agreement entered into the agreement:
- for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party
- for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM of the Act, or a declaration under section 90S of the Act, in relation to the other de facto relationship
- with reckless disregard of those interests of that other person.
- a party to the agreement entered into the agreement:
- for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a marriage with a spouse party
- for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 79 of the Act, or a declaration under section 78 of the Act, in relation to the marriage (or void marriage)
- with reckless disregard of those interests of that other person.
- the agreement is void, voidable or unenforceable
- in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out
- since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the de facto relationship) and, as a result of the change, the child or, if the applicant has caring responsibility for the child, a party to the agreement will suffer hardship if the court does not set the agreement aside
- in respect of the making of a Part VIIIAB financial agreement–a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
- a payment flag is operating under Part VIIIB of the Act on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part
- the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB of the Act
- if the agreement is a Part VIIIAB financial agreement covered by section 90UE:
- at least one of the spouse parties to the agreement was not provided, before signing the agreement, 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 to that party of making the agreement
- if this advice was provided to at least one of the spouse parties to the agreement–that party was not provided with a signed statement by the legal practitioner stating that this advice was given to that party
- and it would be unjust and inequitable, having regard to the eligible agreed matters (within the meaning of section 90UE) for the agreement, if the court does not set the agreement aside.
Upon considering the facts of the case and determining whether any of the above requirements apply, the court may vary or set the financial aside and/or make further financial orders in substitution for the terms of the agreement that had been set aside.
If you are considering applying to the court to set aside a financial agreement, it is important to seek immediate legal advice.
The law surrounding such applications is particularly complex and difficult to navigate. The skilled family law solicitors at Marino Law have considerable experience in successfully litigating an application to set aside a financial agreement.
Termination
A financial agreement can only be terminated with the agreement of each party to the original agreement or by means of a Consent Order. If an agreement to terminate the financial agreement is reached, termination can only be undertaken as follows:-
- by entering into another financial agreement that includes a provision that terminates the previous agreement; or
- by entering into a termination agreement. Similar to the original financial agreement, the termination agreement must be signed by each party, and each party must have received independent legal advice prior to entering into the terms of the termination agreement.
Death of a Party
Upon the death of a party, the terms of the financial agreement are binding upon the executors of that party’s estate and continue to be in effect despite the death of the party.
Unfortunately, a financial agreement cannot prevent a party from making any future family provision claim against your estate. However, your financial agreement can be effectively drafted to dovetail into your estate plan, and at the very least be used an evidence of your intention in the event of your death.
Our team of experienced family lawyers at Marino Law can attend to the negotiation of terms, drafting and provision of advice in respect of any financial agreement entered into under the Family Law Act 1975.
Marino Law has been named as a Recommended Gold Coast Family and Divorce law firm for several years running on the prestigious Doyles Guide.
