How to avoid a Family Law property settlement

“Prenuptial agreements” / Binding Financial Agreements

One of the most common questions asked by our clients “How do I avoid a family law property settlement?” The short answer in most cases where the relationship has been a lengthy one, involves joint property, and parties have separated, tends to be that it is usually unavoidable at that point. Realistically, the two best ways to avoid a family law property settlement are:

Entering into a Binding Financial Agreement (“sometimes referred to a Prenuptial Agreement”); or
Never starting a relationship in the first place.

The second option is not usually emotionally practical. The first may be.

The purpose of this article is to outline the types of Financial Agreements that can be entered into between parties, how to enter into one, how to terminate one, how Court can set one aside, and how to maximise the prospects that it remains binding.

What types of Financial Agreements can be entered into?

Under the Family Law Act 1975, Financial Agreements may be made in the following circumstances between the following:

Parties contemplating entering into marriage with each other, and others (Section 90B);
Parties to a marriage who have not divorced, and others (Section 90C);
Parties who have now divorced, and others (Section 90D);
Parties contemplating entering into a de facto relationship, and others (Section 90UB);
Parties who are in a de facto relationship, but the relationship has not broken down, and others (90UC);
Parties to a de facto relationship which has broken down, and others (Section 90UD).

While the legislation permits agreements after separation, this article is directed primarily to agreements made before or during a relationship.

What is a Financial Agreement?

A Financial Agreement is a written agreement dealing with how parties will manage or divide their:

Property;
Financial resources; and
In some cases, maintenance.

The effect of a Financial Agreement that is found to be binding is to oust the jurisdiction of the Federal Circuit and Family Court of Australia in relation to matters covered by the Agreement. In practical terms, this means that once the Agreement becomes binding on the parties, the Court will generally be unable to hear and determine later Application for property settlement or maintenance to the extent that those matters are dealt with by the Financial Agreement.

If a party breaches the terms of the Financial Agreement, the terms of the Agreement can be enforced as if those terms were Orders of the Court. This protection exists only if the Financial Agreement is found binding.

When does the Financial Agreement become binding?

For an Agreement to be binding, the formal requirements within Section 90G (for marriage agreements) and Section 90UJ (for de facto agreements) must be satisfied.

Those requirements are as follows:

Must be signed by all parties;
Before signing the Agreement, each party must receive independent legal advice from a legal practitioner about:

(a) The effect of the Agreement on that party’s rights; and
(b)The advantages and disadvantages at the time the advice was provided of entering into the Agreement;

Either before or after signing the Agreement, each party must be given a signed Statement by the legal practitioner confirming that the required advice was provided;
A copy of that signed Agreement must be given to the other party or that party’s solicitor;
The Agreement must not have been terminated and must not have been set aside by a Court.

In some circumstances even if all the technical requirements are not met, the Court may find that it is unjust and inequitable for the parties not to be held to be bound by it. However, it is preferable not to have to rely on this, but to meet the technical requirements.

Terminating a Financial Agreement

After a Financial Agreement has been signed by both parties, it can only be terminated without a Court Order by:

Entering into a subsequent Financial Agreement which terminates and overrides the previous; or
Making a written Termination Agreement which expressly terminates the earlier Agreement.

The parties must receive independent legal advice before entering into a Termination Agreement.

If parties wish to make any change to the Agreement after it is signed, they must enter into an entirely new Agreement that replaces the earlier Agreement. You cannot simply vary the earlier Agreement.

How can a Court set aside a Financial Agreement?

A party may later attempt to have a Court set aside a Financial Agreement. The principal grounds include the following:

Fraud, including non-disclosure of a material matter – for example, fraudulent misrepresentation as to the value of a property, a bank account, a company interest, or a business. Exchanging financial disclosure before entering into a Financial Agreement is of vital importance;
The Agreement is void, avoidable or unenforceable – this may arise from mistake, uncertainty, incompleteness, the accidental omission of a critical term, one party knowing there is a mistake and deliberately allowing it to remain undetected, or language so ambiguous that the Court cannot identify the parties’ contractual intent with sufficient certainty;
Impracticality – Circumstances arising since execution making it impractical for the Agreement or part of it to be carried out;
Material change in circumstances relating to a child – if since the Agreement was made, there has been a material change in circumstances in relation to the care, welfare and development of a child relationship and as a result, a child or the carer, who was a party, would suffer hardship if the Agreement was not set aside;
Duress, undue influence or unconscionable conduct – duress is generally confined to threatened or actual unlawful conduct. Undue influence may arise when one party exerts influence over another for the benefit of the stronger party or a third party. Unconscionable conduct may arise where one party suffers from a special disadvantage or disability that makes them unable to protect their own interests, and the stronger party knowingly takes advantage of that position;
Purpose of defeating or defrauding creditors or other person – this includes circumstances where the Agreement was entered into to defeat or defraud a creditor, in relation to a possible pending property settlement application, or with reckless disregard for the interest of a creditor or a third party;
A payment flag was in operation over superannuation, if a flag prevents payment from a superannuation fund is in force, it cannot be lifted by Agreement;
The Agreement deals with unsplittabel superannuation interest that cannot lawfully be split.

How to reduce the risk of a future challenge to the Financial Agreement?

A well-drafted comprehensive Financial Agreement remains the best defence to an attempt a property settlement or a challenge to set aside a Financial Agreement. However, parties should take note of the following:

Financial disclosure should be exchanged early and comprehensively so that both parties know what they are getting into or foregoing;
One party should not pay for the other party’s legal advice, which can affect the perceived independence of that legal advice;
There should be no deadlines attached to the signing of a Financial Agreement, so it is preferable that (as an example) if a wedding is to occur, the parties enter into the Financial Agreement well before such a wedding;
That the parties stick to the written terms of the Financial Agreement throughout the relationship and do not attempt to deviate from it by way of some unenforceable oral addendum to the Agreement.

Agreements entered into before or during a relationship are among the most technically demanding areas of family law. They can be highly effective, but they can also fail spectacularly if they are rushed, poorly drafted, or negotiated in circumstances that later support an application for the Agreement to be set aside.

Legal advice from a specialist in family law is essential. If you are considering entering into a Financial Agreement, please contact our firm on (02) 4944 3322 to make an appointment with our Accredited Specialist in Family Law, Hayden Carr or via the form below.