Binding Financial Agreements

Binding Financial Agreements

The Family Law Act 1975 (“FLA”) allows married or de facto couples to enter into binding financial agreements about financial issues in their relationships. These agreements can be entered into prior to a marriage (commonly known as a “pre nup”), during a marriage or after divorce and deals with how a couple’s asset pool is to be divided in the event of a breakdown in the marriage and/or spousal maintenance they are essentially a property settlement agreement.

binding financial agreementsIn relation to a de facto relationship, binding financial agreements can be made before commencement of cohabitation, during cohabitation or after the end of the de facto relationship commonly known as a de facto separation agreement.

An important point about binding financial agreements is that they have the affect of ousting the Court’s jurisdiction to decide these issues. This means once parties enter into a binding financial agreement, they give up their rights under the FLA for the Court to make such a determination. This has both positive & negative implications for both parties to a binding financial agreement.

A party entering into a property settlement agreement or binding financial agreement is admitting the existence of the de facto relationship & therefore will not be able to challenge the courts jurisdiction to hear the matter should the relationship end and their binding financial agreement is set aside.

A party entering into a de facto relationship may find them selves presented with an agreement that is inherently unfair but due to pressures within the relationship they accept the terms of the de facto separation agreement or are unable to negotiate for themselves.

If you are asking yourself “how can I protect my assets while in a de facto relationship” then a binding financial agreement may be of use. In order for a Binding Financial Agreement to be binding on the parties it must comply with specific provisions set out under the FLA.Section 90G(1) applies to agreements made before, during or after a marriage.

Similarly, section 90UJ(1) applies to agreements entered into before, during or after a de facto relationship commonly known as a de facto separation agreement. The Agreement is binding on the parties to the agreement if and only if:

  • the De Facto Separation Agreement is signed by both parties; and
  • before signing the Agreement, each party was provided with independent legal advice from a legal practitioner about:
  • the effect of the Agreement on the rights of that party, and
  • the advantages and disadvantages, at the time the advice was provided, to the party making the Agreement; and
  • each party is provided with a signed statement by their legal practitioner stating that the advice (above) was provided to that party; and
  • each party or their lawyer is also given a copy of the signed statement by the lawyer for the other party; and
  • the Agreement has not been terminated or set aside by a Court.

Although property settlement agreements and binding financial agreements have the effect of ousting the Court’s jurisdiction, they can be set-aside in limited circumstances where:

  • the Agreement was obtained by fraud or failure to disclose material information;
  • the Agreement is void, voidable or unenforceable.  Under contract law this can be established if the Agreement was obtained through undue influence, duress or unconscionable conduct;
  • the agreement being entered into to defeat or defraud a creditor, or with reckless disregard to the interest of a creditor;
  • changes in the parties circumstances have made the agreement impracticable;
  • since the making of the Agreement, a material change in circumstances has occurred relating to a child, and it would result in hardship for the child or a party if the agreement is not set aside;
  • the conduct of one of the parties in making the agreement was unconscionable;
  • a payment flag is operating under Part VIIIB 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; or
  • the Agreement covers at least one superannuation interest that is an un-splitable interest for the purposes of Part VIIIB of the FLA.

If the Agreement is set aside, then each party is free to apply to the Court for orders in the usual way for property settlement or apply for spousal maintenance with a view to reaching a property settlement agreement. The Court has wide powers to set aside the Agreement where one or more of the above circumstances apply.

A binding financial agreement can be a useful and cost effective instrument, which provides certainty and control to parties as to how their assets will be divided upon the breakdown of a de facto relationship. It can save parties the cost of court proceedings if they separate. In order to be enforceable and binding however, such agreements must be carefully drafted in accordance with the requirements of the FLA.

Remember, the information contained on the site does not constitute legal advice. If you think you need legal advice you should contact an Accredited Family Law Specialist.

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