Financial Agreements
A financial agreement (also known as a binding financial agreement, pre-nup, post-nup or cohabitation agreement) can be made between a couple if they are:
- considering living together as de facto partners
- already living together
- separated (whether from a de factor partner or spouse)
- divorcing or divorced
A financial agreement sets out how the parties agree to divide their property and financial resources if they separate in the future or have already separated.
Generally, a financial agreement is legally binding if it is properly prepared and complies with the formalities required under the Family Law Act. In the right circumstances, it can be a quicker and more cost-effective solution to finalising a property settlement.
Making a financial agreement
Financial agreements contain provisions relating to the division of property and resources and may also provide for maintenance. When negotiating the agreement, the parties should give proper disclosure of their assets and financial resources.
Typically, after a verbal agreement is reached, the parties meet separately with their lawyers who will explain the effect of the agreement and provide independent legal advice. The parties must each be aware of their respective rights and obligations under the proposed agreement.
The agreement operates like a legal contract between the parties – each has certain rights and obligations and must abide by the terms of the contract. This may involve closing bank accounts, the payment of money by one party to another within a particular time, or the sale of certain property and distribution of funds according to the agreement. The parties must act reasonably and in good faith to fulfil the terms of the contract.
Financial agreements are not approved or registered in court. By signing a financial agreement, the parties effectively contract out of certain provisions of the Family Law Act that would otherwise determine how their assets should be divided in the event of or after a breakup. Parties should be aware that a financial agreement may result in a less or more favourable division of property had the agreement not been in place and the usual property settlement processes under the Act applied.
Enforcing or setting aside a financial agreement
If a party fails to perform his or her obligations under a financial agreement, the person seeking to enforce the agreement must apply to the court for a determination that it is valid and enforceable. If the court finds that the agreement is valid then an order will be made for its enforcement.
An application for enforcement of a financial agreement may be opposed by an application to have the agreement set aside. Following are some examples of circumstances where this might occur:
- the agreement was obtained by fraud or duress
- a party failed to disclose significant assets when making the agreement
- there is a dramatic change in circumstances creating hardship for a party to the agreement or concerning the welfare of a child of the relationship
- generally, the court considers it is ‘just and equitable’ to preserve the rights of a party
Alternatives to financial agreements after a relationship breaks down
It may be preferable for separated couples to formalise their family law property settlement in other ways, for example, having an agreement endorsed by the court through consent orders.
Consent orders are only used after a relationship breaks down and, unlike financial agreements, may include parenting matters. Accordingly, if separated couples need to have an agreement in place for both financial and children’s matters, consent orders covering both may be more appropriate.
We can assist you with making an informed decision regarding the use of a financial agreement for your property settlement and prepare the necessary documents for you. We will explain your legal rights clearly and make the process as simple and cost-effective as possible.
If you need assistance, contact [email protected] or call 03 9546 8155 for expert legal advice.