Financial relationship agreements
Australian family law permits couples to enter into financial agreements before, during, or after marriage. Couples in a de facto relationship can also make a financial agreement.
What is a financial binding or Pre-nuptial agreement
Pre-nuptial agreements are a form of binding financial agreement that couples make when they plan to marry. Couples usually make those agreements to protect their assets in the event of a divorce. Similar agreements can be made by couples who plan to live together without marrying.
After a marriage or de facto relationship has begun, financial agreements can be used to allocate ownership of assets or to designate responsibility for payment of debts. When a marriage or de facto relationship breaks down, a financial agreement is a useful way to divide property, including superannuation agreements, and to specify whether one party will pay spousal maintenance to the other.
Certain steps need to be taken to make a financial agreement binding on the court
Obtaining legal advice is one of those steps. Even if you do not want to enter into a binding financial agreement, however, it is wise to seek legal advice to assure that you understand your rights and responsibilities before entering into a financial agreement.
Types of financial agreements
The Family Law Act 1975 recognizes six kinds of financial agreements. They are:
The contents of the financial agreement are up to the parties to decide. All six kinds of financial agreements can cover the same subjects, including:
- Property ownership and management during a marriage or de facto relationship.
- Division of property after the marriage or relationship ends.
- Division of superannuation interests.
- Division of debts.
- Spousal maintenance.
- Adult child maintenance.
- Claims on the estate of a party who dies.
- Other incidental issues.
Since these can be complex matters, it is wise to obtain legal advice before making or signing a financial agreement.
Requirements to make an agreement binding
A financial agreement that is made in contemplation of, during, or after a marriage can be made binding if certain procedures are followed. Both parties to the marriage must obtain independent legal advice. “Independent” means they cannot use the same lawyer.
Other requirements to make an agreement binding include:
The agreement must be in writing.
- The agreement must be signed by both parties.
- The agreement must contain a statement in which both parties acknowledge that they received independent legal advice before entering into the agreement.
- The lawyers must provide certificates to each party confirming that the party received independent legal advice.
The agreement remains binding on the parties unless and until it is set aside or terminated by a court order. The agreement is not, in a strict sense, binding on the court, but the Family Law Act does require the court to enforce the agreement under most circumstances, even if the court has reservations about the fairness of the agreement.
Under the Family Law Act, a financial agreement made between the parties to a de facto relationship is binding if it is made in New South Wales, Victoria, Queensland, South Australia, Tasmania, the Australian Capital Territory, the Northern Territory, or Norfolk Island. If you are living somewhere else in Australia and want to make a contract to settle property issues when your de facto relationship ends, you should consult with a lawyer to learn about your options.
There are advantages to using a consent order rather than a financial agreement to settle financial issues. If you reach an agreement with your spouse or former partner, you can put that agreement into the form of a consent order. You then submit the proposed order to the court. If the court agrees that the order is reasonable, it will enter the order.
A consent order is enforceable as if it were entered by the court after a contested hearing. A binding financial agreement can be enforced like any other contract, but parties need to start a legal action seeking remedies for the breach of that contract. It is generally easier to seek a remedy for the breach of a consent order than it is to seek a remedy for the breach of a financial agreement.
On the other hand, there is no such thing as a prenuptial consent order. If you want to make an agreement before you are married, you need to enter into a financial agreement.
In addition, if a court does not think your proposed consent order is fair or reasonable, it has the option not to enter the order. It is more likely to enforce a binding financial agreement even if it thinks the agreement is unfair, providing that the legal requirements to make the agreement binding have been satisfied. If you think the court might balk at enforcing your agreement, therefore, a binding financial agreement might be preferable to a consent order.
Australian law imposes a duty on married couples to support each other. That duty continues, as necessary, after divorce. Whether one party will need to make a financial payment to the other after a divorce depends upon the circumstances, including the income available to each party, their financial needs, and the nature and value of the property that each party possesses after the divorce.
Parties can make a financial agreement to pay no maintenance (or to pay only a nominal sum, such as a lump sum payment of $1.00). Even if the parties have made a binding financial agreement, however, a court might not allow a former spouse to avoid the duty of supporting the other former spouse if that spouse is receiving a means-tested public assistance benefit (such as Centrelink). Parties cannot use a contract to avoid their legal obligation to support an impoverished spouse after the divorce, if the law would otherwise impose that duty.
Unless a financial agreement specifies otherwise, the death of a party does not revoke the agreement. If financial payments that are part of a property settlement are still owing to one spouse when the other dies, the spouse who is entitled to those payments can make a claim against the estate of the deceased former spouse to collect those payments.
Even if a financial agreement specifies that all obligations will terminate at death, the termination might not be enforceable. Contract and probate law in each state or territory, as well as the nature of the obligation, will determine whether the other spouse will still be able to make a claim against the deceased spouse’s estate.
Parties to a financial agreement cannot ask a court for relief from their obligations merely because they later decide that they made a bad deal. There are, however, specific grounds under the Family Law Act that justify setting aside a financial agreement. They include:
- Fraud against the other party.
- Fraud against creditors.
- Mistake, ambiguity, the impossibility of enforcement, duress or undue influence in making the contract, violations of public policy, or other reasons that make the agreement void as a matter of contract law.
- Changed circumstances make compliance impracticable.
- Hardship, particularly when circumstances have changed with regard to a party’s obligation to support a child.
- Superannuation interests that cannot be split or a flag that cannot be terminated.
- Protection of other parties.
To set aside a financial agreement, it is usually best to ask the court for relief prior to breaching the agreement. A lawyer can assist you in asking a court to set aside a financial agreement if grounds for doing so exist.
Terminating a financial agreement
Parties can agree to terminate a financial agreement at any time by entering into a termination agreement. To be binding, a termination agreement must be signed by both parties after they each obtain independent legal advice about the effect of termination on their rights and obligations, as well as the benefits and detriments of terminating the agreement. The parties must also obtain certificates from their lawyers to establish that they received the required advice.
If parties want to make a new financial agreement, they can provide in the new agreement that the old financial agreement will terminate when the new one takes effect. The requirements for making a new financial agreement binding are the same as those that apply to the original agreement.