BINDING FINANCIAL AGREEMENTS – COMMONLY REFERRED TO AS PRE-NUPS
Are they really binding?
Want to stay out of the Court and make your own private agreement? The answer is that you certainly can.
Following Family Law Act amendments in 2000 financial agreements were able to be entered after 27 December 2000 to provide for people starting relationships, during the relationship or after their relationship ended or after their marriage ended in divorce to enter into their own private agreement about how they would deal with financial matters including property settlement and spouse maintenance.
Since they were introduced there has been significant amendments relating to financial agreements and there are further amendments currently being considered. The government considered that private people should be able to enter into their own private arrangements but they were concerned that perhaps vulnerable people would be forced into agreements they did not really want to enter or did not understand. For that very reason the legislation included a requirement that solicitor must give advice to each of the parties to a proposed financial agreement about whether that agreement is in their best interests at the time the agreement was entered.
Financial agreements have become technical documents that require careful scrutiny to ensure that there are no errors. There are some very particular and critical requirements under the Family Law act that must be adhered to. That’s one reason why you should engage a family lawyer who is both experienced and an expert in that field. In fact, those wise lawyers who practice in other fields will usually not undertake instructions to prepare a financial agreement because they are aware of the pitfalls of drafting a document which is later found to be defective.
There is a raft of litigation around negligent legal work. One instance of that is the Olympic swimmer Grant Hackett who apparently commence proceedings against his former solicitors after his former wife succeeded in setting aside the financial agreement.
Some interesting points to note are:
Financial agreements have a great role play in family Law and allow people contemplating relationships, in relationships or ending their relationship to document their own agreement. When entering a financial agreement you are contracting out of the control of the Family Law Act relating to property settlement and spousal maintenance. The Family Law Act no longer applies to the matters set out and addressed in a financial agreement.
Financial agreements don’t have to be “fair”. When you either go to court and have a judgement about property or spouse maintenance or you enter into a consent order and file that in court covering those issues then the court will want to ensure that the terms reached or ordered are just and equitable. In other words, the arrangement must be fair in the eyes of the court having regard to the relevant sections of the Family Law Act.
The most prevalent use of financial agreements (and I include the term “prenup”) in our experience is:
where there is a significant disparity in the asset holdings of parties at the commencement of the relationship;
where at the end of the relationship, an agreement is reached which would not be seen as being “just and equitable” by the Court but the parties nevertheless want to enter that agreement;
where parties have previously ended other relationships and are wary of having to distribute their assets including a superannuation for a second or third time during their lifetime. This is a rather wise approach given that second and third marriages or relationships are statistically greater chance of failure.
Financial agreements then do have benefits, but it is important to ensure that the agreement is properly drafted and complies with the requirements of the Family Law Act strictly. Whilst the government has made certain amendments (and there are amendments being considered) which will reduce circumstances in which a financial agreement will be able to be challenged and set aside, strict compliance with the requirements of the Family Law Act is the wisest approach.
If you have reached an agreement and a financial agreement is an attractive option for you then we can provide you with a fixed fee once there is a firm agreement about the terms in place.
If it is the case that you would prefer a financial agreement instead of a consent order but just can’t quite reach a final agreement then we can also help through negotiation, mediation and collaborative law processes to get you to the point where you do have an agreement which can then be documented appropriately.