Before entering any kind of binding financial agreement or speaking with a financial agreement lawyer, especially regarding family matters, it is always best if you fully understand what you are getting into and how it can help your situation.
What Is a Financial Agreement?
In Australia, a financial agreement or a binding financial agreement is a written contract between two individual parties. This contract explains how financial resources will be divided between each party if the relationship ends. While you may know a financial agreement as a prenuptial agreement, you can create a financial agreement before entering a relationship, during it or even after it has ended.
Financial agreements are typically legally binding. However, a prerequisite for this is that both parties must get independent legal advice from a licensed financial agreement lawyer. This is to lessen the likelihood of one party being unfairly disadvantaged because they misunderstood or couldn’t comprehend the agreement. Another important factor of the agreement is that it will need to meet the requirements set out in the Family Law Act 1975.
Since financial agreements are legally binding contracts, they can be extremely detailed. Therefore, the process usually takes up to 4–8 weeks to complete. Undertaking a financial agreement can be quite a time-consuming process, so it is not recommended that you begin drafting and finalising the financial agreement prior to any large or stressful events such as getting married or purchasing a home. It is better to take the time to fully understand the implications of the agreement rather than rush into a binding contract that may disadvantage you later.
What Does a Financial Agreement Cover?
Financial agreements can be tailored to each individual case. This means that your agreement can look very different from someone else’s agreement. It is not essential for your financial agreement to cover every single aspect of your financial relationship. However, a basic structure for a financial agreement can cover the following aspects:
- What that financial settlement can look like, including the distribution of property and superannuation.
- How both parties will provide and receive financial support or maintenance to and from each other.
- If and how money will be divided amongst both parties. This can include money residing in joint bank accounts and if division will occur on a regular basis.
- How money will be handled in the event of changes to the working situation of either party. This can include situations such as a party moving to part-time work or acting as a stay-at-home parent.
- How existing debt will be handled.
- How the ownership and financial responsibility of pets will be handled.
- How changes to the financial relationship, such as those that occur because of a legal marriage, the birth of children or the growing length of a relationship, will affect any agreed-upon provisions.
Why Someone Might Choose to Get Into a Financial Agreement
For many individuals, a binding financial agreement can provide a sense of certainty or security that allows them to feel more comfortable in the relationship, even if they do not ever expect the relationship to end. This can help couples avoid arguments revolving around finances and assets, allowing both parties to move forward with a positive frame of mind. Furthermore, a financial agreement allows you to avoid court proceedings when dividing assets and liabilities at the end of the relationship, as well as decide any ongoing financial maintenance.
There are some common instances which can prompt individuals to enter a binding financial agreement. These include:
- Wanting to preserve ownership of existing property or inheritance, including anticipated inheritance.
- The urge to protect yourself if you possess greater wealth than your partner.
- Needing to protect the interests of any children from former relationships.
What Are the Advantages of a Financial Agreement?
Before you decide on getting a financial agreement, it is important to know whether it will benefit you. There are pros and cons to getting a financial agreement which can help you decide whether it is the right path for you and your partner.
Cost Effective If the Relationship Breaks Down
Most binding financial agreements usually cost between $5,000–$10,000 depending on the degree of complexity involved in the drafting process. While this might seem like a lot, it is far less than you would have to spend on protracted and stressful litigation, which can come to $50,000–$70,000. In this way, and assuming an agreement can be reached, binding financial agreements are a cost-effective method in which to resolve matters.
Plays an Important Role With Estate Planning
A great advantage to having a binding financial agreement is that it can ensure that an individual or couple’s property and finances are dealt with in the intended manner. With effective estate planning, a binding financial agreement can work in union with any documents prepared to arrange the transfer of assets in anticipation of death.
Offers Additional Tax Benefits for Increased Savings
Another great thing about financial agreements is that they come with tax benefits. As part of entering a binding financial agreement, all parties to the agreement will be exempt from paying Stamp Duty on any transfer of property required under the terms of the agreement.
What Are the Disadvantages of a Financial Agreement?
Like all things, there are also disadvantages to moving forward with a financial agreement.
There’s No Regulation Around Standards
One of the major issues is that there is no regulatory body that will thoroughly examine or scrutinize the content of a binding financial agreement before it goes into effect. Additionally, there is no registration system for formal recognition of the contents of a financial agreement. Therefore, it is a requirement to obtain advice from a financial agreement lawyer prior to drafting the agreement. Without the help of a legal advisor, you may end up disadvantaging yourself without realising it.
They Can Be Set Aside by the Court
There are some instances where the court can set aside your agreement.
- In creating the agreement, fraud was involved, such as failing to disclose relevant materials.
- A party entered into the agreement for the purpose of defrauding or defeating a creditor, or with reckless disregard for the creditor.
- A party to the agreement used the arrangement to:
(a) Defraud a person who is in a relationship (married or de facto) with the other party member of the agreement.
(b) Defeat the interests of that person for property adjustment under the Family Law Act.
(c) With reckless disregard for that person. - If the agreement should not have come into effect in the first place (i.e., it is void or voidable, or cannot be enforced).
- If the situation has changed after the agreement has come into effect that now make it difficult or like carry out the agreement in part or full.
- A material change in circumstances occurs and because of that change, the child or the party caring for the child will suffer hardship.
- If one party engaged in conduct that was “unconscionable” in making the agreement.
They Cannot Be Obtained Without Using a Solicitor
Anyone who enters a financial agreement is legally required to obtain independent legal advice from a financial agreement lawyer. This is done to ensure that both parties are fully aware of the implications of the agreement. If both parties do not wish to involve solicitors, the parties will need to consider filing an application for consent orders with the court. These consent orders nullify the need for a solicitor.
How to Go About Getting a Financial Agreement
The main instances that allow you to obtain a binding financial agreement include marriage or de facto relationships. In the case of marriage, you can enter into a financial agreement either before, during or after the marriage. Similarly, you can obtain a financial agreement for de facto relationships either before, during or after the relationship.
Regardless of what the nature of your relationship is, it is mandatory to get yourself independent legal advice before entering into any financial agreement. Each party to a financial agreement must be provided with independent legal advice about specified matters by an Australian financial agreement lawyer before finalising and entering the agreement.
How to Terminate a Financial Agreement
In some instances, parties may wish to terminate a binding financial agreement. This is possible through one of two ways. Either:
- The parties can enter into another financial agreement. This will require a specific provision to be included in the new agreement which states that the former agreement is terminated; or
- The parties can enter a “termination agreement” in line with section 90J (for married couples) or section 90UL (for de facto couples). However, to ensure that this termination is binding, all parties to the agreement must sign the new termination agreement. Furthermore, each of the parties must have received independent legal advice with respect to the termination agreement.
How Law Firm Can Help You
Financial agreements can be complex and technical documents, which require careful drafting to ensure that there are no errors. Therefore, it is important that you have a reputable team on your side when embarking on this journey. Law firms are more than prepared to offer you the best advice and support. Find yourself a financial agreement lawyer today.
