Financial Agreements

A Financial Agreement is a legal agreement between two or more people – and including same sex couples – that governs the distribution of the property of a marriage or de facto relationship.

Such agreements have been available to parties since amendments were made to the Family Law Act 1975 (Cth) in 2001 and the Family Court Act 1997 (WA) in 2002. Once parties properly execute a Financial Agreement, they relinquish all rights under the Family Law Act or Family Court Act for the Court to resolve financial issues between them.

Couples can enter into a Financial Agreement:

• prior to marriage (commonly referred to as a Pre-Nuptial Agreement or “Pre-Nup”); or before commencing a de facto relationship.
• During the course of a marriage or de facto relationship.
• After separation or divorce, as an alternative to making Consent Orders at Court.

For the most part, a couple would enter into a Financial Agreement before marriage or commencing a de facto relationship in order to protect assets they already own and that the other party has made no contribution to.

The agreement would usually specifically exclude those assets from any claim by the other party in the event that the relationship breaks down at some point in the future.

Such agreements may also seek to identify and exclude from any settlement negotiations assets or future income a party might receive from an inheritance or inter-family transfer e.g., a farm that has been in the family for generations.

Financial Agreements are also useful where parties have previously been separated or divorced and enter a new relationship, and they want to protect their assets for their children after death.

At a basic level, the parties may simply wish to avoid conflict and the risk of protracted, expensive Court proceedings in the event of a relationship breakdown.

To be binding, Financial Agreements need to meet very strict criteria set out by the legislation. In basic terms, these are:

• The agreement is in writing and signed by all parties.
• The parties have provided full financial disclosure, including details of all assets, liabilities, financial resources, and income.
• Each party must receive independent legal advice before executing the agreement and provide a statement to that effect.
• The parties’ solicitors must provide written certification that advice was given in relation to the advantages and disadvantages of entering the agreement, and a copy of that statement is provided to the other party.

Before it makes any orders by consent, the Court needs to be satisfied that the proposed orders are “just and equitable” i.e., fair to both parties based on all of the known circumstances and be within the range of possible outcomes had a Judge or Magistrate determined the outcome after a hearing. 

However, a Financial Agreement is not approved by the Court and does not need to overcome the “just and equitable” test applied before making Consent Orders.

Accordingly, there is no requirement for a Financial Agreement to be objectively fair – the outcome can simply reflect an agreement that both parties are satisfied with in the circumstances.

If that outcome is wholly unfair, that is the parties’ choice, and the Court will not later intervene so long as the strict legislative requirements have been met.

Parties are effectively free to enter into Consent Orders without obtaining legal advice, but not a Financial Agreement.

In a word… “No”.

Child support is a completely separate issue from property settlement and is dealt with by the Child Support Agency, except in limited circumstances when the Court has power to intervene.

If you want to formalise your arrangements for child support, and avoid continuous assessments by the Agency, the parties can enter into a Binding Child Support Agreement.

Unlike a child support assessment, this can cover a multitude of areas such as payment of private school fees, medical bills, extra-curricular activities, and other financial commitments that the primary caregiver may have with respect to the children.

The ability of parties to entirely “contract out” of spousal maintenance as part of a Financial Agreement is restricted by Section 90F of the Family Law Act.

Accordingly, if it is satisfied that when the agreement came into effect the circumstances of the claimant were such that, considering the terms and effect of the agreement that party was unable to support themselves without an income-tested pension, allowance or benefit, the Court can still make orders for spousal maintenance notwithstanding the terms of the Financial Agreement.  

Most Financial Agreements, however, seek to limit the possibility of a spousal maintenance claim being made after separation, and this is achieved by the notional payment by each party to the other of a nominal sum (e.g., $100) in full and final settlement of any such claim.

The reciprocal payment of this minimal sum (which effectively “cancels out” the payment due between the parties) denotes that the parties have turned their attention towards the issue of spousal maintenance and have agreed its terms, even though these provisions cannot necessarily be enforced under the terms of the agreement.

The Family Court has the power to revoke the provisions of a Financial Agreement in various circumstances.  The principal grounds for doing so are as follows:

• The agreement was obtained by fraud or duress. Duress would involve e.g., pressuring the other party to execute the agreement shortly prior to marriage by threatening to cancel the wedding.
• One party fails to disclose assets or relevant information the other party would objectively have relied upon in entering into the agreement.
• One of the parties entered into the agreement in an attempt to defraud or defeat third party creditors, or with a reckless disregard to the interests of a creditor.
• Circumstances have arisen since the execution of the agreement that make it impractical to implement the original agreement.
• Since the making of the agreement, there has been a material change in circumstances relating to a child of the relationship and hardship would result for the child or their carer if the agreement was not set aside.
• One of the parties to the agreement engaged in unconscionable conduct in relation to the preparation and execution of the agreement.

In the event that the agreement is set aside by the Court, either party is then at liberty to make an application for a property settlement in the usual way, as if the agreement had never been executed.

Yes – there is no obligation for the Financial Agreement to include every item of property, but the parties need to bear in mind that if any significant asset has been omitted from the terms of the agreement it may be open to either party to deal with such property under the terms of the Family Law Act or Family Court Act, on the basis that the agreement did not intend to cover it. By the same token, it is also not uncommon for Financial Agreements to relate to a single item of property e.g. – a very substantial inheritance to be received by one party in the future.

In the preparation of a Financial Agreement, each of the parties should disclose:

• All real estate held in their name or in which they have an interest, including property held overseas.
• All current superannuation entitlements.
• Any interest or shares held in a family business, or a listed/unlisted company.
• Any interest in a family trust.
• Cash reserves in bank accounts.
• As a rule of thumb, any assets worth $2,000 or more (although this sum is not specified in the legislation), including but not limited to vehicles, household furniture and furnishings, antiques, artwork, and jewellery.

Parties should also disclose all liabilities including mortgages, vehicle finance, personal loans, credit card debt, HECS fees etc.

Usually, the terms of Financial Agreements will be drafted so as to make clear the parties’ intentions upon separation and that neither of them should have any further claim against the Estate of the other except as provided for in any will. However, it is vital that parties make sure their Wills are kept current and do not conflict with the provisions of the Financial Agreement.

If there are contrasting terms between a Financial Agreement and a Will, the issue may have to be decided by a Court considering the specifics of both documents and the circumstances in which they were made.

Notwithstanding the terms of any Financial Agreement to the contrary, such documents cannot specifically exclude a claim being made under the Family Provision Act 1972 (WA).