What is a binding financial agreement?
A binding financial agreement is a legal agreement entered into by the parties to a marriage or de facto relationship. They generally detail how the parties will divide their property and other financial resources in the event of a divorce or breakdown of the relationship. “Binding financial agreement” is the term used by the Family Law Act 1975 (Cth) to describe what are more commonly known as pre-nuptial agreements, post-nuptial agreements, and separation agreements. Essentially under the Family Law Act part VIIIA binding financial agreements can be made before (s90B) and during (s90C) marriage and after divorce (s90D). They can also be made before (s90UB), during (s90UC), and after the breakdown of (s90UD) a de facto relationship under Part VIIIAB of the Act.
Why would I want a binding financial agreement?
A binding financial agreement, provided it is valid and enforceable, allows the court when dealing with property settlement in the event of divorce or relationship breakdown to enact the wishes of the parties instead of simply imposing a settlement it deems appropriate. The website of the Family Law Court lists the following as advantages of an agreement reached between the parties to a relationship:
- you make your own decisions;
- you greatly reduce the financial and emotional costs of legal proceedings;
- your continuing relationship as parents, if you have children, is likely to work better;
- you are able to move forward and make a new life for yourself; and
- you may improve communication with your former partner and be better able to resolve disputes in the future.
This explains why you would want to enter into a binding financial agreement after the breakdown of a relationship, but why would you enter into one any earlier? In this day and age it is the sad truth that not all relationships last ‘till death do us part’, it is therefore not unwise to think about what you are going to do if your relationship ends while you are still together and thinking rationally.
What is the applicable law in Australia?
In Australia all binding financial agreements relating to couples who are married or planning to get married are governed by the Family Law Act. However in the case of de facto couples the Family Law Act does not apply to binding financial agreements made by couples who are ordinarily resident in Western Australia. In WA binding financial agreements are governed by the Family Court Act 1997 (WA), but can still be made before (s205ZN), during (s205ZO), or after the breakdown of (s205ZP) a de facto relationship.
Are binding financial agreements binding and enforceable?
YES! Binding financial agreements will be binding provided they satisfy the requirements of s90G (married couples) or s90UJ (de facto couples) of the Family Law Act. The requirements are as follows:
- The binding financial agreement must be in writing and signed by both parties;
- Each party must have obtained independent legal advice (from different legal practitioners) prior to signing the agreement. The advice must explain the effect of the agreement on the rights of the party, as well as the advantages and disadvantages of entering into the agreement;
- The legal practitioner must also provide a signed statement certifying that this advice was given to the party; and
- And a copy of this independent certification must be given to the other party’s legal advisor.
This makes independent legal advice and independent certification by a lawyer essential to your binding financial agreement being valid and enforceable.
It follows that if any of these requirements are not met a binding financial agreement will not be binding and enforceable. There are other factors affecting the binding nature and enforceability of binding financial agreements – s90K and s90UM list circumstances in which a court may set aside a binding financial agreement. These circumstances as well as other factors which will affect the enforceability of an agreement are explained below.
Fraud
A court may set aside any agreement that has been entered into fraudulently, either for a fraudulent purpose or through the failure of a party to disclose a ‘material matter’. An illustrative case is that of Nyles v Nyles in which a wife had shares in her own company, the binding financial agreement she and her husband entered into was based on the fact that the company was private and the shares had a certain value. However a couple of months after signing the agreement the wife’s company became listed as public and her shares increased considerably in value. The husband sought to have the agreement set aside. The court held that while this was an example of fraud and would usually set such an agreement aside, the wife was a under strict confidentiality obligation in relation to the company going public, and the husband had ignored his solicitor’s advice to hold off on signing, thus did not set the agreement aside.
Void, voidable, or unenforceable terms
A binding financial agreement is essentially a contract in nature; the Family Law Act even expressly states that the doctrines of law and equity which apply to contract also apply to binding financial agreements (s90KA and s90UN). This means that if an agreement has void, voidable or unenforceable terms due to flaws in drafting, or the presence of contractual vitiating factors such as mistake undue influence then it can be set aside by a court.
Material change in circumstances
A material change in circumstances is defined in the Act as relating to the care, welfare or development of a child of the marriage. If the circumstances upon which the binding financial agreement was based, say spousal maintenance payments based on a party having no dependent children to care for, have changed and not setting aside the agreement would cause hardship then a court may set the agreement aside.
Unconscionability
In the case of Blackmore and Webber [2009] FMCA FAM 154 a couple had entered into a binding financial agreement 5 days before their wedding, the wife was 4 months pregnant and would only be allowed to remain in Australia if she got married as her visa was about to run out. The court was informed that the husband had told his soon to be wife that if she did not sign the agreement the wedding was off. The court held that this binding financial agreement was to be set aside as it was made under duress, and was extremely unjust and unconscionable.
Separation agreements
Terms of an agreement which set out how property is to be divided in the event of a relationship breakdown (marriage or de facto) require a separation declaration before they come into effect and can be enforced (s90DA and s90UF). A separation declaration must be in writing and signed by at least one of the spouses. It must state that at that time the parties are living separately and apart, and that there is no likelihood of their cohabitation being resumed.
Maintenance
Finally provisions in relation to spousal or child maintenance will be void, that is not effective, if they do not specify the name of the party who is to receive the maintenance, and the amount they are to receive (s90E and 90UH).
Can binding financial agreements be terminated or varied?
Binding financial agreements can be terminated under s90J and s90UL, and new agreements signed in their place. In order for a termination to be valid it must be in writing as either a term in any new binding financial agreement , or as a separate written agreement between the parties (‘termination agreement’). A termination agreement must meet the same formal requirements as a binding financial agreement such as being signed and each party obtaining independent legal advice and certification. A court may also set aside a termination agreement under s90K or s90UM.
What happens if a spouse dies?
If a party to a binding financial agreement dies the agreement remains binding on the estate of that party (s90H and s90UK).
Can my partner and I write a binding financial agreement ourselves?
As you can see while binding financial agreements are an excellent way to have your wishes upheld in the case of a relationship breakdown, they are also quite easy to get wrong. Non-compliance with formal requirements can render your binding financial agreement invalid. It is advisable to have a legal practitioner draft an agreement for you, that way you will also be complying with the requirement of independent legal advice. It is important to ensure you and your partner have separate and different lawyers, and both of you receive independent advice and certification. A binding financial agreement can save a lot of time and money in the unfortunate event of a relationship breakdown provided you have got it right from the start.
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