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It is tempting to call binding financial agreements “pre-nups”, but this ignores most of the picture. Binding financial agreements can occur at any point before, during and even after a marriage has ended. In essence, they clarify the process of what happens upon divorce such as how assets are to be divided and whether, and how much, maintenance will be provided.

Why Should I Want a Binding Financial Agreement?

It’s a good question. After all, you two love each other and it’s “till death do us part.” Getting a financial agreement may thus be seen as tempting fate. And, unless you’re just landed the prime role in the latest blockbuster movie or won the lottery, you may believe it isn’t worth the hassle.

But binding financial agreements can cover any type of asset, contingency or consequence you can imagine. They can detail maintenance, separation of assets (whether acquired before or during the marriage), how the children (if any) are to be cared for. As such, they are perfect for protecting any asset that has sentimental value for you, whether or not it is also financially valuable. They can therefore be used to protect your grandmother’s priceless china collection that she bequeathed you.

Binding financial agreements therefore offer relative certainty in the unfortunate event that your relationship does break down. Without a financial agreement, if you do end up in court, the decision will be based on what the judge deems to be proper, just and equitable in the circumstances, not how you decide. The consequences of this process are unknown until a decision is made, and even then it may be appealed, leading to a drawn out process. On the other hand, a binding financial agreement provides certainty in advance. Further, because it is an agreement, the parties do not have to receive equal shares of the assets, although you may certainly choose to do so.

Divorces and separations are painful enough already. Emotions are typically high. Adding uncertainty and legal battles to the mix does not suggest a good outcome for either person. A financial agreement can resolve many of these problems.

Finally, as the agreement is binding, you don’t have to appear before a court. In fact, they prevent either party from applying to the Family Court over assets or dealings that the financial agreement covers. This cuts out all the associated legal costs that are often involved with protracted divorces. Ultimately, this means more assets for both of you following the divorce. Since you don’t have to appear before court, this also means you don’t have to make financial disclosures to the court.

Essentially, they are a form of legal and financial insurance in the worst case scenario.

How Do You Enter Into a Binding Financial Agreement?

Financial agreements can be entered by any two people who are married or are intending to marry. Financial agreements are binding – in that they are very difficult to overturn – but they do need to satisfy the formal requirements specified in section 90G of the Family Law Act 1975 (“the Act”) to achieve this status:

1. the agreement must be written. An oral agreement won’t suffice. This is because they are quite complex documents, and specificity is vital.
2. both parties must receive independent legal advice from a legal practitioner. This advice must tell each of you what the agreement means for you, in terms of your rights, and the advantages and disadvantages of the agreement. It is encouraged that you get this advice in writing.
3. the agreement must contain a clause stating you have each obtained such advice.
4. a signed certificate from the legal practitioner attesting to this advice must be attached to the agreement.
5. each party must sign the agreement.
6. finally, each party must have either a copy or the original of the financial agreement.

These steps essentially prevent either party from saying they were not aware of the consequences of the agreement when they entered into it.

When is a Financial Agreement Not Binding?

Although they offer relative certainty, financial agreements are not rock solid and they can be overturned in some very specific occasions. Section 90K of the Act lists the first few circumstances, notably where:

• Any of the above formal steps have not been satisfied;
• You have not disclosed, or have concealed or misrepresented, the extent of your assets and resources at the time you entered into the agreement;
• It is impracticable for the agreement to be carried out, for instance;
• A change has occurred relating to a child which will cause that child to suffer hardship; or
• You entered into the agreement by fraud, or for the purpose of defrauding another.

Your legal advisor can offer more information on these, especially as certain standard clauses in financial agreements may potentially be void. For instance, section 90F overturns any clause that prohibits the courts from instituting a maintenance agreement if, at the time, the other party was unable to support themselves.

A financial agreement can also be overturned by contract law, because they are, in essence, a contract. A full breakdown of these situations is beyond the scope of this article, but in summary, they arise where:

• In the process of getting one party to sign the agreement, the other party engaged in conduct that was highly unethical or fraudulent;
• The agreement is vague and it is unclear what it intends to do;
• Either party forced the other person to sign the agreement; or
• Both parties sign a new agreement terminating the financial agreement.

All of these factors, however, should be dealt with by your legal practitioner when you receive advice as to the financial agreement. Because of the difficulties involved with drafting a relatively complex document, it is recommended you also use your practitioner to draft, or help draft, your financial agreement. This will help ensure it is binding, and provide the necessary protection to both of you should the relationship fall apart.

Other Binding Financial Agreement Articles:

• Creating a Binding Financial Agreement
• All The Single Ladies
• Binding Financial Agreements in Australia

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Disclaimer: The above information provided by Inveiss Legal Pty Ltd is intended only as a guide. The impact of laws can vary widely based on the specific facts of each case. Further, given the changing nature of laws and the inherent speed of electronic communication, there may be inaccuracies in the above information. As such, this information is provided on the understanding that Inveiss Legal Pty Ltd is not rendering any legal advice or services. The information contained herein is not a substitute for qualified, independent legal advice and the same should be sort prior to engaging in any activity relating to the above subject-matter.

Although we have made every effort to ensure the information has been obtained from reliable sources, Inveiss Legal Pty Ltd is not responsible for any errors or omissions. In no event will Inveiss Legal Pty Ltd, or its directors, agents or employees, be liable for any decision made, or withheld, in reliance of the information contained herein.