A Financial Agreement (also known as a “binding financial agreement”) is a private contract between two people that is made in accordance with specific provisions of the Family Law Act. Financial Agreements are available to parties whether they married or de facto.
As with Consent Orders, the first pre-requisite for a Financial Agreement is that the parties have reached an agreement regarding their property and finances. Without an agreement, a Financial Agreement is not an option.
A key difference between Financial Agreements and Consent Orders is that Consent Orders are only available to parties upon the conclusion of their relationship. Financial Agreements, however, can be entered into before, during or after a relationship. For the purpose of this article, the focus is on Financial Agreements that may be obtained after separation (including both married and de facto relationships).
As with Consent Orders, the parties’ property interests that may be considered in a Financial Agreement include things such as real property (house / land etc.) cash / savings, shares, personal property (cars, household contents, jewellery, collections etc.) superannuation, interests in businesses and the like.
Financial Agreements can also provide for the maintenance of either of the parties and include liabilities such as home loans, credit cards, taxation debts, finance owed to third parties, personal loans and the like.
Unlike Consent Orders, Financial Agreements cannot seek to deal with or distribute property or financial resources that have been acquired by either or both of the parties after divorce (in the case of parties who were married) or after separation (in de facto relationships).
Similarly to Consent Orders, parties to Financial Agreements must exchange disclosure of their total direct and indirect financial circumstances.
Parties who wish to enter into a Financial Agreements are not restricted by any time limits and can do so at any time.
If prepared and executed correctly, a Financial Agreement removes the Court’s jurisdiction to deal with financial matters. For this reason, a Financial Agreement is not considered by the Court and is not subject to the Court’s requirement that the proposed outcome be “just and equitable” for the parties.
Notwithstanding this, the technical requirements for a valid Financial Agreement are set out in detail in the Family Law Act. The Financial Agreement must strictly comply with these requirements in order to be considered “binding”.
Importantly, before signing the Financial Agreement, each party to the agreement must be provided with independent legal advice from a legal practitioner about the effect of the Financial Agreement on the rights of that party and about the advantages and disadvantages, at the time the advice was provided, to the party making the agreement. Each party must be provided with a signed statement by the legal practitioner stating that the requisite advice was provided to that party.
The Court’s Power to Set Aside (Cancel) a Financial Agreement
The Court retains its power to set aside a Financial Agreement on a number of grounds, such as:
- the agreement was obtained by fraud (including non-disclosure of a material matter);
- the agreement was entered into by a party for the purpose of defrauding or defeating a creditor (or with reckless disregard of a creditor’s interests);
- the agreement entered into by a party for the purpose of defrauding another person (such as a de facto partner who is not a party to the agreement) or defeating their interests (or with reckless disregard of the interests of that other person);
- the agreement is void, voidable or unenforceable;
- when making the agreement, a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable;
- circumstances have arisen since the agreement was made that render the agreement (or part of the agreement) impracticable to be carried out;
- since the agreement was made, a “material change” in circumstances has occurred, and, as a result of the change, the child or party to the agreement will suffer hardship if the court does not set the agreement aside;
- the agreement deals with a superannuation interest that is subject to a payment flag (under Part VIIIB of the Family Law Act) and there is no reasonable likelihood that the operation will be terminated by a flag lifting agreement;
- the agreement covers an “unsplittable superannuation interest for the purposes of Part VIIIB” of the Family Law Act.
Further, there is substantial case law that demonstrates that the Court will set aside a Financial Agreement due to errors in drafting and non-compliance with the requirements of the Family Law Act. In such circumstances, the Court can make orders adjusting the respective parties’ property interests that may be quite different to the terms of the Financial Agreement entered into by the parties.
Key Differences between Consent Orders and (post separation) Financial Agreements
In summary, some of the key differences between Consent orders and Financial Agreements (entered into post separation) include:
- Consent Orders must satisfy the Court that the agreement proposed by the parties is just and equitable in all of the circumstances.
- The Court does not assess a Financial Agreement. Therefore, it is not subject to the “just and equitable” test that Consent Orders must satisfy. Parties to a Financial Agreement are at liberty to enter into what may be considered a “bad bargain” if they so choose.
- The Financial Agreement may contain clauses that effectively keep elements of the financial relationship between the parties intact. For example, ongoing joint ownership of a business, or real property. Conversely, when making Consent Orders, the Court has a duty to end financial relations between the parties, and, as far as practicable, make such orders as will finally determine the financial relationship between the parties and avoid further proceedings between them.
- Financial Agreements are complex contracts that must be prepared in strict compliance with the Family Law Act. Each party must obtain independent legal advice and this can be costly. If a Financial Agreement has been poorly drafted, it may be set aside or varied by the Court and litigation that the parties had hoped to avoid, may ensue.
- It is not mandatory for parties to obtain independent legal advice when applying for a Consent Order, however, legal advice and assistance is advisable, to ensure the documents are correctly drafted and meet the requirements of the Family Law Act.
- Consent Orders are subject to time limits. Financial Agreements are not.
- Consent Orders can provide for the distribution of property and financial resources acquired after divorce and separation of de facto couples. Financial Agreements cannot.
- Consent Orders can be varied. Financial Agreements cannot.
- Consent Orders can include simple to detailed provision for parenting matters. Financial Agreements cannot.
When it comes to post separation financial settlements, at ABKJ Lawyers it is our preference to assist our clients to obtain Consent Orders rather than Financial Agreements where possible. In our experience, Consent Orders are usually easier and cheaper to prepare, and provide our clients with the assurance that, once made, Consent Orders are deemed to be just and equitable by the Court, enforceable by the Court, and final in nature.
To receive specialised advice, specific to your circumstances, please contact our office to arrange an initial consultation with a family lawyer.