What are Financial Agreements?
Financial Agreements (commonly referred to as ‘pre-nups’ or ‘Prenuptial Agreements’) can be entered into at the commencement of a relationship, during the relationship or post separation.
Essentially, parties to a financial agreement ‘contract out’ of the provisions of the Family Law Act 1975. Having such an agreement can save a significant sum of money, including the costs associated with property settlement negotiations or litigation if the parties separate.
Financial Agreements can be used:
- As a risk management tool for couples seeking to pre-arrange how they will divide their property if they separate. It allows parties to enter into a private, binding agreement that precludes the later involvement of the Family Court
- For separated couples seeking to finalise their obligations to each other in the context of spousal maintenance (and in conjunction with a Court ordered agreement as to a property settlement). Unlike court orders in the context of spousal maintenance, a financial agreement can permanently finalise spousal maintenance obligations.
Who could benefit from a Financial Agreement?
Financial Agreements may be of assistance to those who:
- Have been previously married and are entering into new relationships. A party may have significant assets and while they may not be planning to have children, they may have children (including adult children) from previous relationships whom they need to protect future inheritances for.
- Are children of wealthy parents. Young couples who are set to inherit significantly from their parents may wish to protect this from any future claim by their partner in the event that they separate by quarantining it from the matrimonial asset pool.
- Are entering into a new relationship where there are significant differences between what each party is contributing at the commencement of the relationship.
Things to consider:
Financial Agreements are not straight forward, particularly when they are used at the beginning of or during a relationship. There must be absolute strict compliance with the legislation and absolutely no hint of pressure or duress.
Both parties are required to have provided each other with full and frank disclosure of their financial circumstances in much the same way that they would do in the event of litigation.
The usefulness and enforceability of a Financial Agreement and the advantages it provides, is entirely dependent upon it being valid and upheld at a later time – that means it will have no force or effect if:
- it is later determined that it was obtained by fraud (including failure to disclose relevant information)
- it is later determined that it was entered for the purpose of defrauding or defeating a creditor
- circumstances have arisen after the agreement was made which makes it impracticable for part or all of the agreement to be carried out
- exceptional circumstances have arisen after the agreement was made, in relation to a child, which would mean that the person will suffer hardship if the agreement is not set aside
There is a requirement for each party to obtain independent legal advice, as to effect of the agreement on the rights of that party; and the advantages and disadvantages of entering into the agreement. There must be an exchange of legal certificates confirming that this advice was provided.