There are few experiences more daunting than navigating a divorce. The process is complex and usually involves numerous emotional and financial challenges. At Duffy & Simon, our team of family law lawyers understand how important clarity and fairness in financial matters is during these stressful times. One of the most effective tools to achieve this clarity is a financial agreement. In this article, we will discuss what a financial agreement is, how and when to obtain one, the benefits they offer, and how the family courts of Australia consider them in divorce proceedings.
What is a Financial Agreement?
A financial agreement, commonly known as a binding financial agreement (BFA) in Australia, is a legally binding document that outlines how assets and financial resources will be distributed between parties in the event of a relationship breakdown. A BFA may sometimes be referred to as a Prenuptial Agreement or ‘prenup’. This agreement can cover various scenarios, including property division, superannuation division, spousal maintenance, and any other financial issues that may arise.
BFAs can be made before, during, or after a relationship, including marriages and de facto relationships. They are designed to provide certainty and avoid protracted legal battles by pre-determining the financial outcomes if the relationship ends.
How to Get a Financial Agreement?
Obtaining a financial agreement involves several critical steps and requires the expertise of a financial agreement lawyer to ensure its validity and enforceability.
Seek Legal Advice
Both parties must seek independent legal advice from qualified family lawyers. This ensures that each party fully understands the implications of the agreement and that their rights and interests are protected. To this end, a financial agreement must contain a statement that each person has received independent legal advice about how the agreement will affect their rights and whether or not the agreement is in their best interests. Each person’s lawyer must also provide a document saying that independent advice was given before the agreement was signed.
Drafting the Agreement
The financial agreement lawyer will draft the document, detailing the division of assets, liabilities, and any financial support arrangements. The document sets out details including assets each party had prior, acquired during, and will retain at the end of the relationship. The agreement must comply with the Family Law Act 1975 and include necessary declarations.
Signing the Agreement
Once both parties have sought legal advice and are satisfied with the terms, the agreement is signed in the presence of their respective lawyers. It’s at this stage when lawyers must also provide a statement confirming that they have given legal advice and that their clients understand the agreement.
When to Get a Financial Agreement?
Financial agreements can be made at any stage of the relationship, including at the end. You do not have to be married, or planning to get married, to enter into a financial agreement.
- Before Marriage or Cohabitation: Known as a prenuptial agreement, it sets out the financial arrangements should the relationship end.
- During the Relationship: Also referred to as a postnuptial agreement, it can be created to address changing circumstances or pre-emptively manage potential future disputes
- After Separation or Divorce: This type of agreement finalises the financial settlement, providing clarity and closure.
Benefits of Financial Agreements
Certainty & Clarity
Financial agreements provide a clear understanding of how assets and liabilities will be divided, reducing uncertainty and potential disputes.
Cost-Effective
By pre-determining the financial arrangements, parties can avoid lengthy and costly court battles.
Privacy
Financial agreements allow parties to keep their financial matters private — as opposed to court proceedings which are public.
Flexibility
Parties have the freedom to tailor the agreement to their specific needs and circumstances, rather than being bound by court-imposed orders.
Preservation of Relationships
By reducing conflict and providing clear guidelines, financial agreements can help maintain amicable relationships, which is particularly beneficial when children are involved.
There are some circumstances where you may find a financial agreement particularly useful:
- You’re going to receive a large inheritance that you wish to be excluded from any settlements at the end of the relationship.
- You have a child from a previous relationship, for whom you wish to preserve some assets.
- There is a specific asset, such as a business, you wish to retain ownership of.
How Financial Agreements Affect Divorce Proceedings
A financial agreement can significantly impact the outcome of divorce proceedings. Here’s how:
Enforceability
If properly executed, financial agreements are legally binding and enforceable. This means that the terms agreed upon will generally be upheld by the courts, provided the agreement is fair and complies with legal requirements.
Reduction in Court Involvement
With a valid financial agreement in place, there is often no need for the court to intervene in financial matters, streamlining the divorce process. It will often speed up the process of dividing your assets and reduce time spent in mediation.
Protection of Assets
Financial agreements can protect individual assets, particularly those acquired before the relationship or through inheritance, ensuring they are not subject to division.
Spousal Maintenance
The agreement can include provisions for spousal maintenance, outlining the amount and duration of support, which can be tailored to the specific needs and circumstances of both parties.
How Does the Family Court Consider Financial Agreements?
The family courts in Australia take financial agreements seriously, but the agreement’s enforceability depends on strict adherence to legal requirements. Courts will consider the following:
- Voluntary Agreement: The court will ensure that both parties entered into the agreement voluntarily and without coercion or undue influence.
- Independent Legal Advice: It must be evident that both parties received independent legal advice about the effect of the agreement on their rights and the advantages and disadvantages of making it.
- Full Disclosure: There must be full and frank disclosure of all assets, liabilities, and financial resources by both parties at the time of drafting the agreement.
- Fairness: The court will assess whether the agreement is just and equitable. If the agreement is found to be unfair or one party’s circumstances have changed significantly, the court may set it aside
- Compliance with the Family Law Act: The agreement must comply with the formal requirements outlined in the Family Law Act 1975, including proper execution and legal certification.
Engage Duffy & Simon Today
Whether you’re considering a financial agreement at the start of a relationship or need assistance with financial matters post-separation, our team of family lawyers in Victoria are here to guide you through the process with expertise and compassion. Contact Duffy & Simon today to discuss how we can assist you in securing your financial future.