Financial Agreements, whether made before (often referred to as ‘pre-nups’) or during a relationship, can be the source of dispute when couples separate. This can lead to unexpected, costly, and time-consuming litigation in the Federal Circuit and Family Court of Australia (the Court).
There are two main ways a Financial Agreement can be challenged:
- If the Financial Agreement fails to meet certain requirements of the Family Law Act 1975 (Cth) (the Family Law Act) it may not be binding. This generally relates to drafting errors within the Financial Agreement. For example, the Financial Agreement states that it’s made about a married couple where the parties are a de facto couple; or
- If the Court finds that something untoward has occurred in the making of the Financial Agreement, it can be set aside. For example, where one party hasn’t disclosed a material fact or document at the time of entering into the Financial Agreement.
So how can we ensure that a Financial Agreement is protected from such risks?
The easy steps to take to ensure your Financial Agreement is ironclad include the following:
- Making sure that both parties are represented by competent lawyers;
- Making sure that the Financial Agreement complies properly with the requirements of the Family Law Act;
- Ensuring that both parties undertake full and frank disclosure including valuations; and
- Ensuring that the Financial Agreement is prepared in an orderly fashion and not rushed.
In recent years the Court has also made it clear that Financial Agreements need to be a fair and reasonable bargain between the parties to the Financial Agreement. A one-sided Financial Agreement may therefore be difficult to uphold in the Court when challenged. A person seeking to challenge a Financial Agreement typically has little to lose beyond the potential for significant legal costs.
Ensuring fairness and reasonableness in a Financial Agreement is a complex process that extends beyond the steps listed above. The unpredictability of life’s changes also means that clients face the challenge of anticipating an unknown judge’s perception of fairness and reasonableness at an unknown future point in time.
So how can we ensure that a Financial Agreement is fair and reasonable?
To achieve fairness and reasonableness in the Financial Agreement, the following factors should be carefully considered:
- Is there some consideration included in the Agreement? If there is a significant disparity in wealth, does the agreement provide for payment from the wealthier to the less wealthy party on separation? This payment need not be large, however, an Agreement that has no payment whatsoever is going to be susceptible to challenge;
- Does the Agreement take into consideration what might occur upon the birth of children? While historically women have been more likely to be disadvantaged, any Agreement that fails to provide adequate support for the parent with primary care responsibilities is susceptible to challenge;
- Does the Agreement force one partner out of the family home immediately following separation? Careful consideration needs to be given to what a fair and reasonable Agreement might provide in this regard. For example, a more balanced approach might include a specified timeframe for relocation and financial support to ease this transition; and/or
- Does the Agreement adequately document what the parties have agreed and the basis of their Agreement? For example, if a cash payment is being made under the Agreement, perhaps include some commentary as to how the parties arrived at the figure and why the parties’ considered that figure to be fair and reasonable. Challenges to Agreements often occur several years after the original Agreement was drafted and executed, often in the absence of the solicitors involved at the time that the Agreement was made, so it is important the terms are as clear as possible.
Although other factors can influence the outcome, the issues discussed above are commonly encountered in challenges to Financial Agreements.
This is the first installment of our three-part series on Financial Agreements. Next month we’ll focus on Financial Agreements and disclosure – a topic frequently misunderstood.
Don’t leave your financial well-being to chance. To help ease some of the stress and uncertainty that comes with relationship breakdown, contact our experienced family law team for a confidential consultation.
