Understanding Prenuptial Agreements and Binding Financial Agreements
Prenuptial Agreements (otherwise known as Binding Financial Agreements “BFA”’s) can be drawn up prior to, during or after a relationship/marriage. BFA’s set out how all or any assets or liabilities will be divided in the event of a breakdown of your relationship. This means that the assets and liabilities in the parties’ possession at the time of entering into the agreement can be accounted for and so can any accumulated during the relationship. This also includes superannuation.
Prenuptial Agreements and more information relating to Pre Nups & Binding Financial Agreements in Brisbane can be found on our blog.
Spousal maintenance (hyperlink to spousal maintenance page) may also be considered in a BFA.
If you are contemplating marriage or entering into a de facto relationship it is a good idea to have a competent lawyer advise you on the pros and cons of doing so. It may be in your best interests not to enter into a BFA under certain circumstances.
People enter into BFA’s after a relationship to account for special terms that the Family Court may not make whilst applying for Consent Orders hyperlink to Consent Orders page). In this instance BFA’s provide future security and certainty so that you can make special arrangements that the Court may not make for a number of reasons. This may be for reasons as simple as they may feel that such a decision would prevent the matter returning to the Court to such reasons as the Court not believing such a division is fair.
BFA’s / Financial Agreements under the Family Law legislation are not simple agreements. Speak with an experienced family lawyer at your earliest convenience.
BINDING FINANCIAL AGREEMENTS: Some helpful advice if you are considering entering into a Financial Agreement.
We will often have clients come and talk to us about BFA’s. Many have done some research on the internet and have formed the view that they are not worth the paper they are written on. If they are done properly they will hold up to any scrutiny and will remain as binding as a Court Order. If the right steps and proper drafting are not done then a Court may have no issue in setting the BFA aside and then your property will be dealt with according to Australian Family Law.
Solicitors are required to advise the parties entering into a Financial Agreement on the advantages and disadvantages of entering into Binding Financial Agreements. The advice will need to be written and this is referred to as Independent Legal Advice. This means the parties can sign a certificate attached to the agreement that they have received this independent legal advice. The solicitors also sign certificates stating that they provided the advice required prior to the parties signing the agreement.
The advice not only needs to set out the advantages and disadvantages, and your rights and obligations on entering into the BFA it must also advise what would happen if the agreement were set aside and your rights and obligations should you be subject to Australian Family Law under case law and the Family Law Act 1975.
Helpful Hint: You will very likely find a lawyer who will witness your signature on an agreement you or someone else has drafted and tell you what the agreement means. They will then sign the certificate stating that they have given you independent legal advice. They may do this for only a few hundred dollars. If you have not received full written advice as set out on this page it will fall over if challenged. Then it will not be worth the paper it is written on.
BFA’s are drafted according to the section your circumstances fall under the Family Law Act 1975. You will need to have the agreement drafted pursuant to different sections depending on whether you are in, intending to enter, or are ending a de facto (link to de facto page ) relationship or a marriage. The same weight is attributed to both relationships under the Family Law Act 1975 and this is the same for same-sex couples. (Link to same-sex couples page)
To obtain the required written independent legal advice first detailed instructions of the relationship must be obtained by the solicitor. This includes:
- Financial and non-financial contributions coming into the relationship;
- Financial and non-financial contributions during the relationship (if it has already commenced);
- The ages and qualifications and employment histories of the parties;
- Any foreseeable future factors that may inhibit a party supporting themselves in the future related to health or other factors; and
- Any other factors that may impact on a party in a financial or other fashion in the future such as the presence of control, coercion or domestic violence during the relationship.
Binding Financial Agreements Brisbane
It is then necessary to obtain the details instructions in regard to the wishes of the parties in regard to assets they wish to maintain full and legal control over and those assets which are to be joint assets. Instructions are also required in regard to superannuation, estate rights and spousal maintenance should the relationship break down or if there is a death of one of the parties.
It is necessary for both parties to provide of t their present assets, liabilities and other financial resources including superannuation. The schedules are required to be attached to the Financial Agreement. If agreement
All of these factors will need to be considered and steps taken to provide the required full independent legal advice and draft the agreement.
It must be remembered that both parties to the agreement need receive these detailed advices from separate solicitors.
Unless all these steps are carried out and proper advices given there is a strong possibility that the agreement would be overturned by the Family Court if a party upon separation wishes to set aside the agreement and seek a greater property settlement than that set out in the agreement itself.
Once drafted and properly executed one party retains the original agreement and a true copy given to the other party. It is also important that the financial agreement documents are stored in a safe place. The agreement will not come into effect until a point in time in the future when a separation occurs. This may not be for a considerable time, therefore, there is an obligation on the parties to maintain the financial agreement documents until such time it will need to become relied upon.
Note: It is necessary that the other party obtains an advice from a competent family lawyer and receives a detailed advice in writing. There are many cases where the agreements have been set aside when the partner has not obtained that detailed advice.
WHAT ARE THE ADVANTAGES OF ENTERING INTO A PRE-NUPTIAL, POST-NUP, OR BINDING FINANCIAL AGREEMENT?
- A financial agreement does not become a court or public record. A financial agreement is not required to be filed even in the Family Court (that is Court in which a financial agreement may be challenged).
- The parties can incorporate spousal maintenance terms into their financial agreement should there be a breakdown in their relationship and should the financial agreement come into force? The financial interests of the parties will be clearly defined in the agreement, however, a party may apply for spousal maintenance in special circumstances after separation even if there have been terms included in the financial agreement preventing the party from applying.
This means it is a good idea to consider spousal maintenance provisions in the agreement.
It is advisable to define clearly the spousal maintenance to be paid should a separation occur.
The parties should be aware of the provisions of section 90F of the Family Law Act 1975 and the other provisions in the case of a de facto relationship.
These provisions state:
- No provision of a financial agreement excludes or limits the power of a court to make an order in relation to the maintenance of a party to a marriage or a de facto relationship if the court is satisfied that, when the agreement came into effect, the circumstances of the party were such that taking into account the terms and effect of the agreement, the party was unable to support himself or herself without an income tested pension, allowance or benefit.
- The assessment of the ability of a party to support themselves without an income tested pension benefit takes place not when the agreement is made but when it takes effect.
- Provisions can be incorporated into a financial agreement to determine superannuation interests of the parties. That is pursuant to the terms of the agreement the parties can determine how their superannuation entitlements will be divided upon separation and when the agreement come into effect.
Careful consideration must be given to the drafting of terms in regard to superannuation due to the sum of superannuation a party has at the time of the agreement coming into effect will only be known at that time or the time of death.
The drafting of such terms in the financial agreement must satisfy the requirements of the trustee of the particular fund as it would in Orders of the court. This is to provide procedural fairness to the superannuation fund.
There may be other superannuation funds that a party enters into in subsequent years. For the benefits in a superannuation fund (or any entered into after the drafting of the financial agreement) to be paid to the other party upon separation, the provisions must be specifically set out in the financial agreement so that the trustee of the fund is given procedural fairness to approve the provisions set out in the agreement.
- The Binding Financial Agreement may be limited to the extent that it deals with specific assets or liabilities only. As an example, a family home may be excluded from the division on separation by express provisions in the agreement. Similarly, should there be a partial transfer of interest in an asset upon a separation then this may be provided for under the agreement to ensure that partial separation does occur?
When an agreement is limited to specific assets the other assets falling outside of the agreement will be dealt with under the general provisions of the Family Law Act 1975 and in relation to the law applicable at the time of the separation.
- The financial agreement may include third parties and the third parties may be bound by the terms of the agreement. As the Family court does not have the power to make orders binding third parties a financial agreement has a greater advantage over Court orders in this regard.
WHAT ARE THE DISADVANTAGES OF ENTERING INTO A BINDING FINANCIAL AGREEMENT
Disadvantages of entering into a financial agreement:
- The parties to a financial agreement clearly define what will happen to their assets and liabilities if a separation should occur in their relationship. This separation may occur many years after the financial agreement is entered into.
The terms of the financial agreement only come into effect once that separation occurs. There could be a substantial change in the party’s financial affairs since the agreement was entered into. Although the agreement may be fair and equitable at the time the agreement was entered into, it may not be fair and equitable when the agreement comes into effect. This would mean that a party may suffer a financial disadvantage at the time of separation. There could be a substantial change in the assets and liabilities of the parties or a party could make substantial contributions towards the acquisition and improvement of assets but would gain no financial interest in the assets although the value of the assets has subsequently increased. Terms of agreements should account for this circumstance at the time of drafting.
- Due to agreements not being required to be filed with any Court, should the parties loose the agreement and a copy not be obtained then the terms of the agreement will not be enforceable?
- The cost associated with both parties entering into a Binding Financial Agreement is comparatively high. There is also the cost of defending an application to have an agreement set aside through litigation (or initiating such application), however, even orders of the Court can be challenged at a later date.
- A Binding Financial Agreement should contemplate children at a later date if there is a possibility that some should result from the relationship. This is necessary due to a change in entitlement to the property of the relationship occurring under Australian family law once children become part of the relationship. A disadvantage may occur when the agreement comes into effect should such matters not be contemplated.
- Full disclosure is required by both parties of their assets and liabilities before signing the agreement and at the time of separation. If at a subsequent time after the signing of the agreement or upon a separation a party becomes aware of other assets owned by the other party and not disclosed in the agreement then the agreement may be set aside.
About Child Maintenance and Child Support
In regard to child maintenance or child support terms in a Binding Financial Agreement, terms can be inserted but such terms must meet the requirements of the Child Support (Assessment) Act.
Effectively a child support provision in a financial agreement can only set out on a temporary basis the child support obligations of a party to the agreement. Once a child support assessment is made by the Child Support Agency, any child support provision in a financial agreement ceases to have an effect and is unenforceable.
Here is what the legislation says about binding financial agreements that may be set aside under the provisions of the Family Law Act 1975
The Family Law Act 1975 sets out that a financial agreement will “end” under two circumstances. It can be either “terminated” under s90J or 90UL or “set aside” under s90K or 90UM. Termination is an action of the parties agree to undertake, however setting aside is an action of the Court.
Setting aside a Binding Financial Agreement
A Court may set aside an agreement if it is “void, voidable or unenforceable”. If this ground is used, the parties or one of them may already consider that the agreement no longer operates. A party may apply to the court for an order that a financial agreement be set aside in circumstances where that party already believes that the contract has been rescinded, breached or is otherwise unenforceable.
- Sections 90J and 90UL of the Act specifically provides that parties to a financial agreement may only terminate it by:
- Including a provision to that effect in another financial agreement, or
- Making a written agreement known as a ‘termination agreement’.
- Financial and termination agreements can be set aside under s90K or 90UM:-
if, and only if, the court is satisfied that:
- the agreement was obtained by fraud (including non-disclosure of a material matter); or
- a party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party; or
(ab) a party (the agreement party ) to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding another person who is a party to a de facto relationship with a spouse party; or
(ii) for the purpose, or for purposes that included the purpose, of defeating the interests of that other person in relation to any possible or pending application for an order under section 90SM, or a declaration under section 90SL, in relation to the de facto relationship; or
(iii) with reckless disregard of those interests of that other person; or
(b) the agreement is void, voidable or unenforceable; or
(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or
(e) in respect of the making of a financial agreement–a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
(f) 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 under that Part; or
(g) the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of Part VIIIB
In some respects, financial agreements are easier to set aside than consent orders and in other respects, they are more difficult to generate.
Financial agreements are enforceable after the death of a party to the agreement. Sections 90H and 90UK provides that a financial agreement:
“continues to operate despite the death of a party to the agreement and operates in favour of, and is binding on, the legal personal representative of that party”.
Parties Terminating a Financial Agreement
The parties may terminate a financial agreement by:-
- Entering into a termination agreement or;
- Entering into a new financial agreement which includes specifically terminating the previous agreement.
Always know your legal options by consulting an Accredited Specialist Family Lawyer in Brisbane.
Pre-Nups, Post-nuptials & Binding Financial Agreements Brisbane (BFA’s)
If you would like to read the relevant sections of the legislation in regard to Divorce Property Settlement and in particular Binding Financial Agreements please go to the Family Law Act 1975. Please reference Sections 90 & 90U.
Prenuptial Agreement and Financial Agreement before, during and after relationship breakdown
Parties are able to enter into a prenuptial agreement or financial agreement regarding assets acquired:
- before and during the relationship; as well as
- after the relationship has ended.
Note: Brisbane Prenuptial Agreements and financial agreements can be particularly useful where you have inherited assets from a family estate, or where you have accumulated your own personal wealth from a successful career and making wise investments.
To make an appointment please call us on (freecall) 1800 662 535
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