Binding Financial Agreements – Handle With Caution

Date: Aug 22, 2010
Document Type: Article
Under the Family Law Act, parties to a marriage or de facto relationship may enter into a financial agreement to make provision for their financial arrangements during the course of their relationship, and for financial settlement upon the breakdown of their relationship. 
 
In marriage cases, financial agreements can be entered into before marriage (commonly referred to as pre nuptial agreements), during marriage (either before or after separation) and after divorce.  
 
In de facto relationships financial agreements can be entered into in contemplation of entering a de facto relationship, during the course of the relationship, or after the relationship has ended.
 
A financial agreement (“BFA”), whether in a marriage or a de facto relationship, that is being entered into during the course of the relationship will make provision for the division of the party’s assets, liabilities and superannuation upon the breakdown of the relationship. These agreements are somewhat speculative and should be entered into cautiously. This is because it is impossible to predict what the parties financial circumstances will be in the future if their relationship breaks down, and it is impossible to predict exactly what a financial settlement under such an agreement will look like at some point in the future. 
 
BFA’s entered into after the breakdown of a relationship can be used to formalise a property division between the parties.  Assuming the parties make a full and frank disclosure of their financial circumstances, lawyers are better able to advise as to whether the contents of the agreement is to the advantage or disadvantage of a party. 
 
The Family Law Act sets out various requirements before a BFA will become binding. Specifically, Section 90G sets out the various mandatory requirements.  This include that each party has received independent legal advice about specific matters, and that a certificate as to what advice was given is annexed to the Agreement, and is signed by each legal advisor.
 
In a decision of the Full Court of the Family Court in Black & Black, it was held that the requirements of Section 90G of the Family Law Act must be strictly complied with. In that case, the agreement contained a certificate as to the advice provided by each party’s independent legal advisor, but the wording of that certificate was in accordance with a previous version of Section 90G. Since the certificate annexed to the Agreement did not strictly comply with the provisions of Section 90G at the time it was signed, it was set aside and it left open a claim for property division using ordinary principles. 
 
The whole purpose of entering into a BFA is to make provision for what each party shall receive by way of property division at some point in the future, or formalise an agreement already reached. Usually, one or both parties will have an interest in not having the agreement set aside, leaving the way open for the other party to make a claim for something other than what the agreement provides. 
 
Parties entering into BFA’s should bear in mind the general obligation elsewhere in the Family Law Act that they make a full and frank disclosure of their financial circumstances. Section 90K of the Family Law Act sets out circumstances in which a BFA may be set aside. One such ground includes fraud by virtue of a material non-disclosure. If a party does not fully disclose all relevant financial circumstances to the other, this may leave a financial agreement open to challenge to be set aside. 
 
It is also recommended that each party receive independent legal advice at arm’s length from one another. That is to avoid any assertion of unconscionable behaviour  - that a party was coerced into entering into the Agreement.
 
The onus on having an agreement set aside is on the person challenging the agreement, and that person must establish that there is evidence of facts to support one of the grounds to set aside the agreement. 
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