Australia: Binding Financial Agreements and the Family Law Act

Introduction

Parties to a marriage or de facto relationship or those contemplating entering into a marriage or a de facto relationship may formally agree how their financial affairs will be regulated in the event of a breakdown of their relationship by entering into a Financial Agreement under the terms of the Family Law Act 1975 (Act).

A Financial Agreement is binding provided it complies with the requirements of the Act.

The effect of a binding Financial Agreement is to exclude the jurisdiction of Courts exercising powers under Act for settlement of property and spousal maintenance.

Background

Amendments to the Act enabling parties to enter into Financial Agreements have occurred against the backdrop of significant changes in the family structure over the last 20 years. The Australian Bureau of Statistics reports that in the last 20 years the rates of marriage have decreased and the rates of divorce have increased. Nearly 50% of marriages end in divorce. The rates of cohabitation of opposite-sex couples have increased as have the rates of cohabitation of same-sex couples. [Australian Bureau of Statistics Year Book Australia 2009-2010].

The highest proportion of 'family types' are couples living with or without dependant children. This snapshot appears to fit with what might be considered the usual concept of the nuclear family, mum, dad and children. The couple however may be in their first or a subsequent marriage or de facto relationship; they may be opposite-sex or same-sex. The dependant children may be children of the current relationship or of previous relationships, in addition to which there may be non dependant children of either of the parties to the relationship. [Australian Institute of Family Studies 'Families then and Now: 1980-2010; Hayes, Weston, Qu and Gray]

In December 2000 Part VIIIA of the Family Law Act (Act) was introduced enabling parties to a marriage (before or after separation) and those intending to marry to enter into a Financial Agreement to deal with their property and spousal maintenance in the event of the breakdown of their relationship.

The basis upon which the 2000 amendment Bill was introduced was spoken to by the then Attorney General, Daryl Williams in his second reading speech in which he said:

In March 2009 Part VIIIAB of the Family Law Act was enacted to enable parties to a de facto relationship or those contemplating a de facto relationship to enter into a Financial Agreement in similar terms to those in Part VIIIA. These amendments relate to opposite-sex and same-sex de facto couples. Significantly, the amendments allow consideration of the superannuation interests of de facto couples.

Similarly, the 2009 amendments were reactive to social change. In his second reading speech to the Family Law Amendment (De Facto Financial Matters and Other Measures) Bill 2008 Attorney General Robert McClelland said, and I set out relevant parts of his speech:

When can a Financial Agreement be made

Financial Agreements may be entered into in the following circumstances:

Marriage:

1. before marriage (section 90B);
2. during marriage (section 90C) – this may be either before separation or after separation and before divorce;
3. after divorce (section 90D); and
4. the termination of a Financial Agreement (Termination Agreement) (Section 90J)

De facto Relationships:

1. before the commencement of the de facto relationship (section 90UB);
2. during the de facto relationship (section 90UC);
3. after the breakdown of the de facto relationship (section 90UD);and
4. to terminate a Financial Agreement between de facto partners under Part VIIIAB (section 90UL).

What can a Financial Agreement deal with?

The Act specifies the matters which may be included in a Financial Agreement. These include:

• The manner in which all or part of the property and financial resources of the parties or either of them is dealt with in the event of the breakdown of the relationship;
• Spousal maintenance during the marriage or de facto relationship or after divorce or the breakdown of the relationship;
• Matters incidental or ancillary to the above; and
• Other matters, which may include child support.

The property and financial resources dealt with in a Financial Agreement may include the property and financial resources:

• owned by the parties individually, jointly or by an entity controlled by one or both of the parties;
• owned at the time the Financial Agreement is entered into;
• acquired by the parties individually, jointly or by an entity controlled by one or both of the parties after the Financial Agreement is entered into.

Subsequently acquired assets may include for example, gifts, inheritances or property purchased from resources owned by one or other of the parties at the time the Financial Agreement was made.

A Financial Agreement may also deal with the superannuation interests of the parties which is property for the purposes of the Act. That part of a Financial Agreement dealing with the superannuation of the parties is a Superannuation Agreement.

Requirements for a Financial Agreement

The Family Court has required strict compliance with the formal requirements of the Act and failure to meet these requirements has resulted in Financial Agreements being set aside. This occurred in the matter of Black & Black (2008) FLC 93-357 a decision of the Full Court of the Family Court.

The Court held that an agreement under the terms of Pt VIIIA of the Act was not binding because it failed to strictly comply with the requirements of the Act. In that case the Financial Agreement did not include a statement that the parties had received independent legal advice in relation to all matters required then by the Act.

On 4 January 2010 amendments to the Act came into effect which addressed the issues arising in Black and Black in an attempt to limit the formal requirements that need to be met in entering into Financial Agreements.

The formal requirements which a Financial Agreement must now meet are that the Financial Agreement:

• be in writing;
• specify the section of the Act under which it is made;
• be signed by all parties;
• be between parties to a marriage, a former marriage or who are contemplating marriage or between parties in a de facto relationship, contemplating a de facto relationship or whose de facto relationship has broken down.
• deal with property, financial resources and/or spousal maintenance of the parties or matters incidental or ancillary to these matters.
• not be with respect to property in a Financial Agreement which is in effect unless the parties have entered into a Termination Agreement in respect of the earlier Financial Agreement;
• each party must be provided with independent legal advice before signing the agreement about:
  • the effect of the agreement on the rights of that party; and
  • the advantages and disadvantages at the time that the advice was provided, to that party of making the agreement.
• Before or after the agreement is signed, each party must be provided with a signed statement by the legal practitioner stating the advice was given;
• A copy of the signed statement is to be given to the other party or to their legal practitioner; and
• The financial agreement has not been terminated or set aside.

As a consequence of the 2010 amendments the Court may declare a Financial Agreement is binding even though it does not meet certain formal requirements of the Act as to the provision of legal advice (Section 90G(1A) and Section 90UJ(1A).

Although on the face of the 2010 amendments the technical requirements for Financial Agreements have been limited there remains a level of uncertainty about the manner in which this will be interpreted by the Court.

Uncertainty about the enforceability of Financial Agreements may therefore arise where requirements are not strictly met and it is left to the discretion of the Court to determine whether in the absence of compliance it would be unjust and inequitable if the agreement were not binding.

When can a Financial Agreement be set aside

A Financial Agreement may be set aside by the Court if and only if one of the following grounds is established:

1. The agreement was obtained by fraud (including the non disclosure of a material matter);
2. A party entered into the agreement:
   • for the purpose or for purposes including defrauding or defeating a creditor or creditors of the party; or
   • with reckless disregard of the interests of a creditor or creditors of the party; or
   • the agreement is void, voidable or unenforceable;
   • In the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
   • there has been a material change in circumstances (relating to the care, welfare and development of a child of the marriage) and as a result of the change the child or the applicant has caring responsibility for the child a party to the agreement will suffer hardship if the court doses not set the agreement aside; or
   • a party to the agreement engaged in unconscionable conduct; or
   • a payment flag is operation under Part VIIIB on a superannuation interest covered by the agreement and the operation of the flag is not likely to be terminated;
   • the agreement covers an unsplittable superannuation interest for the purposed of Part VIIIB.

In the case of a de facto relationship the grounds are somewhat different and include:

• a party entered into an agreement:
• For the purpose or purposes that included defrauding another person who is a party to the de facto relationship;
• For the purpose or purposes that included defeating the interests of that other person in relation to any possible or pending proceedings under section 90SM of the Act (alteration of interests in property) or section 90 SL for a declaration of interest in property;
• With reckless disregard to those interests;

• a party to the agreement entered into the agreement:

  for the purpose or purposes that included defrauding another person who is a party to a marriage with a party to the agreement; or

• for the propose or purposes that included the purpose of defeating the interests of that other person in relation to any possible or pending application for orders under section 79 (alteration of interests in property) of the Act or a declaration under section 78 (declaration of interests in property) of the Act or
• with reckless disregard of those interests of that other person.

Conclusion

Financial Agreements enable parties to exclude the jurisdiction of Courts exercising power under the Family Law Act in respect of their property and financial resources and spousal maintenance. As such Financial Agreements are a powerful planning tool which enable parties a level of control and certainty as to the distribution of their property and financial resources in the event of a breakdown of their relationship.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.