Why have a financial agreement?
The Family Law Act 1975 (Cth) (the ‘Act’) sets out the rules concerning marriage, divorce, responsibility for children and financial matters after the breakdown of a marriage or de facto relationship.
The Act also recognises that people should be free to divide their property by agreement in the event of, or after a break-up, without Court intervention. An agreement made before or during the relationship determines how the property or financial resources of the parties will be distributed if the relationship ends. A financial agreement made after a relationship breaks down formalises the division of property as agreed between the parties.
Financial agreements are not approved or registered in Court (unlike consent orders) however they are enforceable by a Court provided they are formally documented, and circumstances do not exist which would make them void.
The parties must receive independent legal advice and acknowledge that they are each aware of their rights and obligations under the agreement. When prepared correctly and under the right circumstances, financial agreements can be a less formal and cost-effective solution to dividing property.
How binding is the financial agreement?
Provided the agreement follows formal procedures, and unless there are extenuating circumstances a financial agreement is generally binding.
The Court will set aside an agreement obtained by fraud. This includes the non-disclosure of significant assets by a party and agreements made to defeat the interests of a creditor of one of the parties, or a third party with whom one of the parties has pending property matters. Parties therefore need to be honest in their dealings and when disclosing assets, financial resources and estimating values.
A financial agreement may also be set aside if circumstances change dramatically creating hardship for a party or relating to the welfare of a child of the relationship. Generally, the Court will be able to set aside a financial agreement if it considers it is ‘just and equitable’ to preserve the rights of a party.
If you believe you have entered into a financial agreement under duress or in fraudulent circumstances, then we can advise you on your rights to have the agreement terminated or set aside.
What is the effect of the financial agreement?
If the agreement is made prior to or during the relationship, the provisions regarding distribution of property are triggered in the event of a breakup and the parties must divide their property in accordance with the terms of the agreement.
Whether a financial agreement is made prior to, during or after a relationship breaks down, the parties are bound by normal contractual principles.
By signing a financial agreement, parties contract out of provisions of the Act that would otherwise determine the division of assets after a breakup. This circumvents the Court’s usual process used to divide assets and to determine spousal maintenance. More information on this process is contained in our ‘Property Settlements’ section.
Parties should be aware that a financial agreement may result in a less or more favourable division of property had the agreement not been in place and the usual property settlement processes under the Act applied.
What are Consent Orders?
Separating couples who are able to reach an agreement on the division of their property, may apply to have that agreement endorsed by the Court. This is more formal than entering into a financial agreement. Because of the Court’s involvement, the orders are less likely to be set aside. Accordingly, consent orders are said to provide greater finality to property matters.
Consent orders are only used after a relationship breaks down. They can provide for a superannuation split and include matters concerning parenting arrangements.
As with financial agreements, disclosure is critical and the Court will only approve the orders if it considers they are just and equitable in the circumstances.
Your Lawyer will prepare the relevant application which will include a financial statement setting out the assets and liabilities of each party. Draft consent orders are attached to the application and if approved, the orders are stamped by the Court and returned to the parties.
If you are an Australian citizen and are considering separation or a divorce application, we’d love to help. Our experienced Divorce lawyers have assisted many parties with documenting the division of property in the event of a breakup. We will guide you through this process and explain your rights and responsibilities before formalising an agreement.