Overview — Married parties' agreements

In 2000 Pt VIIIA was inserted into the Family Law Act 1975 (Cth) (FLA) and ss 86 and 87 agreements were replaced by financial agreements. Specifically, the new Part provided for three different types of financial agreements relating to married persons, being:

• in contemplation of marriage (s 90B) — see Before marriage;
• during a marriage but before divorce (s 90C) — see During marriage and after separation; and
• after divorce (s 90D) — see After divorce.

In March 2009, the FLA was amended with the introduction of Pts VIIIA and VIIIAB, FLA which now apply to de facto couples who wish to enter financial agreements.

• in contemplation of a de facto relationship (s 90UB);
• during a de facto relationship (s 90UC); and
• after the breakdown of a de facto relationship: s 90UD.

Since December 2017 the legislation applies equally to same sex marriages and de facto same sex relationships.

Section 71A excludes financial agreements from the application of Pt VIII, FLA in respect of an alteration of property interests. “Financial agreements” refers to agreements made under ss 90B, 90C or s 90D which are binding and which relate to either “financial matters” or “financial resources”.

Section 4 defines “financial matters” in relation to married parties refer to the maintenance or property of one of the parties; or the maintenance of children of the marriage.

For a financial agreement to be binding, however, it must also comply with s 90G, FLA.

Purpose of a financial agreement

The purpose of a financial agreement is to enable parties to decide how their assets are to be divided in the event of a separation of divorce without the intervention of a court. Each party to an agreement must receive independent legal advice prior to signing. That advice by a legal practitioner should refer to the effect, advantages and disadvantages of the agreement on the rights of that party at the time of making the agreement.

An alternative to entering a financial agreement on separation or divorce is by way of consent orders filed through the Family Court of Australia which are intended to finalise the parties’ financial relationship. Parties do not need to obtain a certificate of independent legal advice when making consent orders but they are subject to the scrutiny of the court. Arguably, consent orders are also more difficult to vary or overturn once made.

Where parties wish to make arrangements either before or during a relationship, then they must enter a financial agreement and seek to enforce the agreement within two years of a de facto relationship ending, or within one year from the date of divorce. Although the intention of introducing financial agreements was to oust the jurisdiction of the court, in fact, the court retains wide powers to vary, rectify, enforce or set aside an agreement when the terms of an agreement are in dispute.

Advantages and disadvantages of financial agreements

One of the advantages of a financial agreement is that no documents are filed with the court and, therefore, both parties' financial circumstances remain private and confidential. In order to avoid the agreement being set aside, both parties are obliged to make a full and frank disclosure of their financial circumstances at the time of signing the agreement. Fraud (which includes non-disclosure of a material matter for instance in relation to a party's financial circumstances is one of the grounds to set aside an agreement: s 90K or s 90UM.

Disputed financial agreements between married parties are often characterized by circumstances which give rise to claims of duress and unconscionable conduct related to (usually) the wife being pressured to sign an agreement shortly before the wedding day. See for example, Thorne v Kennedy [2017] HCA 49. The court may also set aside an agreement for other reasons such as undue influence, to avoid the claim of a creditor, or for impracticability.

A financial agreement might be preferable to an application for consent orders where the parties’ financial circumstances are complex (for instance involving entities, trusts and third parties) or where a delayed settlement may be more mutually beneficial to one or both parties — instead of a quick “fire sale” property settlement which is commonly provided by an application for consent orders. This arises as a result of the court having a duty to make such orders as “will finally determine the financial relationships” between parties to a marriage, at the time of considering whether to approve the proposed consent orders: s 81. Further the court also has a duty to make such orders as will “avoid further proceedings between them”. Whereas a financial agreement does not require the approval of a court prior to signing by the parties.

Disadvantages of financial agreements are:

• the financial or other circumstances of the parties can change significantly over time. It is difficult to predict what those changes might be. A financial agreement can be inflexible in these circumstances, although clauses can be drafted to increase the flexibility of the clauses to account for changes in circumstances (eg, use of formulas and alternative clauses etc);
• the court has shown a willingness to read agreements down: Black v Black (2008) 38 Fam LR 503 and Kostres v Kostres (2009) 42 Fam LR 336;
• the court will determine whether it is fair and reasonable: Thorne v Kennedy [2017] HCA 49; and
• there is a potential that a legal adviser who does not cover all eventualities may be sued for professional negligence if an agreement proves unsatisfactory or is read down by a court.

Enforcement of an agreement

A valid binding agreement pursuant to ss 90B, 90C or s 90D is determinative of a party's rights on marriage breakdown. It may be enforced in a court having jurisdiction under the FLA, or for de facto parties in Western Australia the Family Court Act 1997 (WA), in the same manner as if it were an order of that court.

A financial agreement, unless set aside, continues in operation after the death of the party and is binding on that party’s trustee: s 90H. The effect of a financial agreement on a party’s ability to claim against the estate of the other party will depend on how that is treated in the relevant law of each State. For example, in NSW a financial agreement does not preclude a party from making a claim under the ,Succession Act 2006 (NSW). The case of Estate of late Fan v Lok (2015) 54 Fam LR 135; [2015] FamCA 300; BC201550327 for example, confirmed that the terms of the agreement were binding even after the wife had died.

In Victoria, changes to the Administration and Probate Act 1958 (Vic) which commenced in January 2015 provide that a person will be eligible to claim against the estate of the deceased includes a former spouse or domestic partner at the time of the deceased’s death who would have been able to take proceedings under the Family Law Act 1975 (Cth). Practitioners should obtain advice from a succession law accredited specialist in their State when drafting the agreement.

Following the 2008 decision in Black v Black (2008) 38 Fam LR 503 in which the Full Court held that a binding financial agreement must strictly comply with the requirements of s 90G, the Federal Justice System Amendment (Efficiency Measures) Act 2009 (Cth) was introduced. Subsection 90G(1A) was added to provide a basis for ensuring the validity of an agreement if not all technical requirements are met, while the binding nature of these agreements is maintained. This provision permits the court to determine on an “unjust and inequitable” basis whether an agreement should be enforced if a party would be disadvantaged by its being set aside. Typical strict requirements that have not been met, include whether one party received “independent legal advice” where it was obtained and paid for by the other party, or where the legal advice certificate referred to another person.

In determining whether an agreement is binding on the parties, the court is not required to determine whether the terms of the bargain offend the “notions of fairness”: Hoult v Hoult [2013] FamCAFC 109. Technical defects such as the provision under which the agreement is made will not defeat the intentions of the parties to be bound by their agreement: Senior v Anderson (2011) 45 Fam LR 540. Parties who are in a de facto relationship are not prevented from entering a financial agreement which is made under s 90B (in contemplation of marriage) and s 90C (when married) provided the agreement complies with s 90G.

An existing financial agreement may not be amended. Rather it may be terminated or be replaced by a new agreement. In both cases, independent legal advice must be provided before signing.

An agreement comes into effect once the parties separate or divorce and either party signs and serves a separation declaration. Where either party disputes the validity of an agreement, they can apply to the court seeking to either enforce or set aside the agreement under ss 90K and 90KA.

See During marriage and after separation.

During marriage and after separation

Parties who are married but wish to secure their separate financial positions should their marriage breakdown can do so by entering into an agreement pursuant to s 90C of the FLA. Parties who are separated but not divorced are also able to make an agreement under this provision in order to reduce prospects of future litigation, particularly in relation to any transfers of real property.

See During marriage and after separation.

After divorce

Parties who have already divorced may enter a financial agreement to adjust their property interests. Practitioners should consider whether consent orders may be appropriate in such cases. Such an agreement can include transfers of real property as well as spousal maintenance but a separate child support agreement may also be appropriate.

See After divorce.