what is the legal effect of a binding financial agreement?
what can binding financial agreements cover?
It’s common to hear of the rich and famous before a marriage, enter into a prenuptial agreement with their spouse. If an individual has substantial assets to guard, it’s maybe not a bad idea to have a prenuptial agreement in place in the event of a relationship breakdown.
In Australia, prenuptial agreements tend to be more known as binding financial agreements , and a valid agreement can oust the jurisdiction of the courts. When creating a binding financial agreement, there are a lot of requirements that has to be met in order for the agreement to be valid, and an agreement can be done before a marriage or cohabitation, during marriage or cohabitation, and after a divorce or the breakdown of a de facto relationship.
Binding financial agreements deal with how property and finances are dealt with in the eventuality of a relationship coming to an end, and can also cover maintenance issues. However, a binding financial agreement cannot relate to parenting matters.
A valid binding financial agreement can remove the court’s ability to issue orders in regards to the distribution of assets or resources, which can usually be made under the provisions in the Family Law Act (the Act). Furthermore, a binding financial agreement can also have the effect of extinguishing the possibility of paying maintenance to the other party.
Although, there is no requirement for a binding financial agreement to be lodged with the court at the time the agreement is produced, the agreement is enforceable via an application to the Family Court.
In order for a financial agreement to become binding and enforceable, there are a number of formal requirements that must be met. The agreement must:
- be in writing and signed by all parties;
- before signing the agreement, all parties were provided with independent legal advice from in regards to the effect the agreement on the rights of the party, and the advantages and disadvantages of a binding financial agreement;
- either before or after the signing of the agreement, a signed statement by the legal practitioner is attached to the agreement, stating that independent advice was provided to the parties;
- the agreement is not terminated or set aside;
- all parties must have a copy of the agreement.
Among the more interesting aspects of the formal requirements when creating an enforceable binding financial agreement, is the condition that parties must have sought independent legal advice. Besides outlining the advantages and disadvantages of an agreement, the legal practitioner must also be able to communicate to their client the overarching effects of the agreement, while anticipating what approach the law might take in relation to the particular circumstances of the parties.
Furthermore, an agreement can be varied by the parties if the circumstances have changed, however, all of the formal aforementioned requirements must be adhered to when varying an agreement.
Although binding financial agreements can ouster the authority of the court, it can be set aside by an order under the following circumstances:
- the agreement was obtained by fraud;
- the agreement was produced to defeat or defraud a creditor, or with reckless disregard of the interests of a creditor;
- the agreement was entered into for the purposes of defrauding another person, who is a party to the de facto relationship with a spouse party;
- the agreement is void, voidable, or unenforceable;
- changes in the circumstances has rendered the agreement impractical;
- a material change has occurred relating to a child, and it would result in hardship for the child or the other party if the agreement is not set aside;
- in making the financial agreement, the conduct of one of the parties was unconscionable;
- there are certain conditions relating to superannuation.
If a binding financial agreement is no longer enforceable: What is the effect?
In the event that a court sets aside the financial agreement, it can make an order which transfers property in a manner that it considers to be fair.
Because binding financial agreements involve many technical aspects which can include issues relating to family and property law, it is essential that a person who is considering entering into a financial agreement, varying an agreement, or have the agreement set aside, to always seek legal advice in relation to their matter.
Disclaimer : This article provides basic information only and is not a substitute for a professional or legal advice. It is prudent to obtain legal advice from a family lawyer.