What is a Financial Agreement in Family Law?

A Financial Agreement, or sometimes also called a Binding Financial Agreement, is a document, similar to a private contract, between the parties in a family law matter.

The intention of a Financial Agreement is to remove the Federal Circuit and Family Court of Australia’s jurisdiction in relation to the financial arrangements of the parties upon their separation, or to address specific issues between them.

The legislative provisions that allow for people to enter into Financial Agreements are applicable for married or de facto partners, or those who intend to become married or de facto, including same sex couples.

Financial Agreements can be entered into before marriage or before the commencement of a de facto relationship occurs, during the marriage or de facto relationship, or after the breakdown of a marriage or de facto relationship, including after divorce.  

‘Pre-Nups’ and Property Settlements

Financial Agreements that are entered into prior to a marriage or de facto relationship are sometimes referred to as a ‘pre-nup’ or a pre-nuptial agreement. Whilst these types of ‘pre-nups’ are quite common in places like the United States of America. They are less common in Australia, despite the family law legislation providing for them to be entered into.

Financial Agreements are more commonly entered into by the parties to a family law matter in circumstances where their relationship has broken down and they wish to formalise a property settlement between them. Unlike alternative methods of completing a family law property settlement, whereby the Court must decide if a proposed property settlement is ‘just and equitable’, there is no such requirement for parties entering into a Financial Agreement.

Sometimes due to sensitive information or privacy aspects of their matter, parties may elect to enter into a Financial Agreement to avoid the Court or anyone else being privy to the settlement reached between them. In other circumstances, the proposed settlement reached between the parties may be unfair and not within the range of outcomes that the Court would consider as just and equitable, as such, to formalise the arrangement despite its unfairness, a Financial Agreement is the best method.

Generally parties are seeking an outcome to their family law property settlement matter that is fair, or just and equitable, and as such, there is no real benefit to them to enter into a Financial Agreement over and above formalising their matters via the Court with a Consent Application.

Spousal Maintenance

One benefit to a Financial Agreement is that it can also address the issue of spousal maintenance in an attempt to extinguish a claim by one partner against the other for future financial support. However this can only occur if at the time of making the Financial Agreement, the parties are able to support themselves without an income tested pension, allowance or benefit.

Asset Protection

There are of course some people who do wish to enter into a ‘pre-nup’ style Financial Agreement for asset protection purposes in the event of a separation or breakdown in their relationship. Parties can attempt to preserve assets they may have entered into the relationship with, or inheritances or gifts they may have received or expect to receive during the relationship from a claim by their partner or spouse in the event of a relationship breakdown.

The difficulty many family lawyers have in advising their clients about Financial Agreements, in particular in these ‘pre’nup’ type agreements is that it can be difficult to predict into the future as to whether an agreement reached now will be appropriate, or fair, in the future.

Are they binding?

For a Financial Agreement to be binding it must be signed by the parties, and prior to signing, each party must have received separate independent legal advice from a lawyer about the effects of the Financial Agreement on their rights, and the advantages and disadvantages of making the Financial Agreement. Each party must be provided with a signed statement from their lawyer as to having been provided the required advice.

Financial Agreements are complex documents and they require careful preparation and consideration, specifically by a family lawyer, along with legal advice for each party independently. There is a significant onus on the lawyers to get the agreements right and draft them properly to minimise the risk that they are set aside by the Court at some later date. There is also a significant risk to the lawyers of facing legal action from their former clients if they get it wrong. This is why many lawyers are reluctant to advise parties on Financial Agreements, specifically in the ‘pre-nup’ style.

For further information about Financial Agreements, please contact our Family Law Team at Harwood Andrews and our experienced lawyers can more carefully consider your personal circumstances.     

Tara Paatsch
Principal Lawyer
M 0412 660 842 | T 03 5225 5254
E tpaatsch@ha.legal

Bridgette Kelly
Principal
M 0438 714 965 | T  03 5225 5275
E bkelly@ha.legal