I love him and he loves me, so why do I need a Binding Financial Agreement or ‘pre-nuptial’ agreement?
A Binding Financial Agreement is a relatively small cost to pay in comparison to the expense of costly litigation. As is often the case in life, it is better to pay a little bit now than a lot later. A Financial Agreement can promote harmony during a marriage and reduce conflict in the event that the marriage does not last.
Statistics show that almost 1/3 of marriages end in divorce. In addition, there is a trend towards people marrying at older ages – in 1971 the average age was about 24 whereas now the figure would be somewhere in the early 30’s.
People are marrying older and therefore are entering into marriages with more accumulated assets and a higher net worth. It is not surprising that with high divorce rates, people (and their families) are keen to protect their assets.
‘Pre nuptial’ Agreements have been around for a while, however it was not until 27 December 2000 that these agreements were ‘binding’ under the Family Law Act.
A Financial Agreement can deal with two main areas: property and maintenance. Such an agreement can detail how assets or financial resources, which the parties bring to the marriage and acquire during the marriage, are to be divided in the event that there the marriage fails. These agreements can also deal with maintenance of the parties during the marriage and after the marriage.
Financial Agreements can be entered into by parties to a marriage before they marry (section 90B), during marriage but before separation (section 90C), during marriage and after separation (section 90C) and after the divorce (section 90D).
The benefits of Binding Financial Agreements are two fold. Firstly, it gives parties greater control over their property and greater choice about their own financial affairs. Secondly, such an agreement reduces conflict and the likelihood of litigation in the event that there is a breakdown in the marriage.
You should consider a pre-nuptial agreement if you are contemplating marriage and either you or your prospective spouse holds significant assets (or significant debts), or if there is a significant disparity in wealth. It might be the case that, by entering into a Financial Agreement, you will be allaying the concerns of the in-laws, or your family, in respect of protecting pre-existing assets and wealth.
There are however pitfalls in relation to Financial Agreements. The Family Law Act does not provide for any form of Court approval or acceptance or ratification. A number of Financial Agreements have been voided or set aside on ‘technicalities’.
It is not enough that a Financial Agreement outlines the agreement between two parties to a marriage or proposed marriage, and is signed by the parties after having received independent legal advice. Financial Agreements must strictly comply with current legislative requirements, otherwise the agreement will be non-binding and unenforceable, and the expense and the effort involved in the preparation of the agreement will all be for nothing.
Therefore it is imperative that whoever drafts your financial agreement or advises you of your rights under a proposed financial agreement is competent and experienced in Family Law and Financial Agreements.
The leading case in this area is Black & Black [2008] FamCAFC 7 (24 Jan 2008). In this case, the parties were married for a short period of 18 months. The parties obtained independent legal advice and signed a financial agreement whereby the parties had planned to purchase a house together. The husband would sell his existing house and apply the net proceeds of about $200,000 to the purchase, and the wife would contribute her settlement moneys of $200,000 that she was likely to receive from a personal injury claim. Under the agreement, if their marriage broke down the new house would be sold and the proceeds divided in equal shares.
The parties, however, purchased the house before the wife received her personal injury settlement. When the settlement came through she received approximately $40,000 which was substantially less than the $200,000 that the husband had speculated.
Under the agreement, the parties intended an equal contribution to the purchase price of the property, and to divide the net proceeds in 50/50 shares in the event that their marriage failed. However the problem was that the wife’s settlement was substantially less than the husband’s contribution.
The marriage failed and the husband applied to the Court to set aside the agreement and to claim an 80/20 division in his favour. The wife sought to protect her 50/50 result under the agreement.
On appeal, this matter focused on whether the Financial Agreement complied with Section 90G of the Family Law Act. Section 90G details the specific criteria for when financial agreements are binding.
The Full Court held that the Financial Agreement was not binding as it did not strictly comply with the statutory requirements.
Binding financial agreements have the effect of ousting the jurisdiction of the Court to determine the division of property or maintenance as provided in an agreement. The law allows for parties to oust the Court’s jurisdiction but only if certain stringent requirements are met.
It is therefore important that the Solicitor that drafts your Financial Agreement, and the Solicitors that provides you with independent legal advice on the financial agreement are experienced and competent in Family Law and Binding Financial Agreements, and are up to date with the Family Law legislation.
Whilst financial agreements can be binding, there are circumstances in which a Court may set aside a financial agreement. These circumstances include fraud, unconscionability, or if there has been a material change in circumstances and as a result of the change a party to the agreement will suffer hardship if a Court does not set aside the agreement.
Whilst opponents to ‘pre nups’ argue that such agreements are contrary to the concepts of love and trust between parties entering into a marriage, the practical advantages of financial agreements of promoting harmony and reducing the likelihood of dispute and litigation can outweigh such disadvantages.