18 Mar 2014

Background

In Australia, pre-nuptial agreements are called Binding Financial Agreements (BFA’s).  The Family Law Act 1975 (“the Act”) allows couple to enter into legally binding financial agreements with respect to their property.  BFAs can be made by people:

                       i.    intending to marry – s 90B FLA;

                      ii.    intending to live in a de facto relationship – 205ZN FCA;

                     iii.    are married and not separated – s 90C FLA;

                     iv.    are living in a de facto relationship and not separated – 205ZO FCA;

                      v.    are married and separated but not divorced;

                     vi.    were living in a de facto relationship and have separated – 205ZP FCA;

                    vii.    are divorced – s 90D FLA.

 

BFAs can deal with a range of matters including spousal maintenance, and how property and financial resources are to be dealt with in particular circumstances.

 

If a BFA is in place and enforceable the usual jurisdiction of the Family Court to determine a property dispute will not apply (s 71A FLA) – the terms of the BFA will govern how financial resources and property are dealt with.  BFAs effectively enable parties to avoid the requirement that would otherwise apply that the division of property be “just and equitable” in all the circumstances.

 

The Family Law Act 1975 (Cth) jurisdiction applies to marriages only. De facto couples are governed by the Family Court Act 1997 (WA) as WA has not referred its powers to the Commonwealth in relation to de facto couples.  WA BFA’s can become FLA agreements under Part VIIIAB of the Family Law Act 1975, if the parties move to a participating jurisdiction.

 

When a BFA may not be appropriate

A BFA may not suit:

a.    Couples intending to have a family.

b.    Circumstances where drafting cannot anticipate and provide for changing future needs.

c.    Where neither party has significant assets, liabilities or financial resources.

d.    Where the BFA is entered before an important event (such as the parties’ wedding) where a claim for undue influence may later arise.

e.    Where the solicitor cannot supervise the client in an annual review of the agreement.

f.     If you are seeking an unlimited unilateral quarantine of assets or a guarantee that any quarantine of assets will withstand any attempt to upset it.

 

Advantages of a BFA

Some advantages of a BFA are as follows:

a.    They can clarify initial and ongoing contributions.

b.    It forces parties to sort out priorities such as who will be the primary carer versus who will be the main breadwinner.

c.    It can prevent disputes.

d.    It provides certainty to the parties as to what will happen on separation.

e.    Quarantine of assets (unilateral or mutual).

f.     It can release one party from paying spousal maintenance.

 

Disadvantages of a BFA

a.    There are many technical requirements for a BFA to be valid. 

b.    Unforeseen changes in circumstances make it difficult to draft a BFA.  Solicitors are required to cover all reasonable possibilities.

c.    If the BFA is not valid, the Court has the power to set it aside (s 90K FLA).

d.    Both parties must obtain independent legal advice, and there must be a clause in the BFA confirming that this step was taken.  This must be certified and the certificate annexed to the BFA.

e.    It can suggest a lack of trust in the other partner or a lack of confidence in the marriage or relationship.

f.     In some circumstances it may be more costly to resolve a contractual dispute at the end of the relationship if the BFA was defective, than it would have been to resolve the matter via family law proceedings.

Conditions for a BFA to be binding

For a BFA to be binding it must strictly comply with the technical requirements set out in the Family Law Act, as follows:

a.    Must be in writing;

b.    Must be made when no other financial agreement is in force as to how the parties’ property and financial resources are to be dealt with;

c.    Must be expressed to be made under either s 90B, 90C or 90D of the Family Law Act;

d.    Must contain a separation declaration signed by at least one of the parties, stating that they have separated and there is no reasonable likelihood of reconciliation;

e.    Any maintenance clause must specify each recipient and the amount of their maintenance;

f.     As a release of future maintenance, recite the recipient as able to support themselves without a pension or benefit;

g.    Must be signed by both parties;

h.    Must include a Certificate for each party that they have received independent legal advice, signed by the solicitor; and

i.      The agreement must not have been terminated or set aside.

 

Can a BFA be set aside by the Court?

A BFA can be set aside where:

a.    The agreement was obtained by fraud (including where there has been non-disclosure of a material matter);

b.    Either party to the agreement entered into the agreement for the purpose of defrauding or defeating a creditor or with reckless disregard of the interests of a creditor of the party;

c.    The agreement is void, voidable or unenforceable;

d.    In the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out;

e.    Material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the relationship) and, as a result of the change, the child or a party to the agreement will suffer hardship if the court does not set the agreement aside;

f.     If there has been unconscionable conduct;

g.    There are impractical aspects of the agreement so far as any proposed superannuation splitting is concerned.

 

BFA’s are a complex area of family law.  You should consult a family lawyer with experience in drafting BFA’s if you are contemplating entering into an agreement.  While the Family Law Act contains the minimum technical requirements, it is important that your lawyer employs a “best practice” (rather than minimum standards required) approach when preparing your BFA and when advising you about the effects of the agreement.

 

This is general information only, and does not constitute specific legal advice.  If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or contact reception@hhg.com.au.

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