Family law financial agreements can be effective tools when used in the right circumstances
In Australia, family law financial agreements are also known as binding financial agreements, BFAs, pre-nuptial agreements and pre-nups.
Lately, they have had bad press. And let’s face it, the term pre-nup has always had a nasty reputation. However, a family law financial agreement can be an effective way to protect your financial position and avoid the possible turmoil of an acrimonious break up.
What is a family law financial agreement, or BFA?
A BFA is a private contract between you and your partner. It specifies how your assets (including superannuation) will be divided when your relationship ends and what your responsibilities are to financially support each other after separation (not including child support).
You can enter into a financial agreement before marriage, before living together, during marriage, while you’re a de facto couple, or after a relationship breakdown.
What are the requirements for a family law financial agreement, or BFA?
Family law financial agreements require you to have the assistance of a lawyer. To be binding, the agreement must be signed by both parties. Before signing, each party must get independent legal advice from separate lawyers about the effect of the agreement on their rights, as well as the advantages and disadvantages of making the agreement. The lawyer must also sign a statement confirming that they have provided that advice.
Signed copies of the document must then be provided to both parties and both lawyers.
Why all the bad press about family law financial agreements?
A 2017 case heard by the High Court of Australia is one of the most famous decisions about pre-nuptial agreements. The Court decided to set aside a family law financial agreement and discussed what couples should consider when making a financial agreement.
In that case, Ms Thorne was a woman aged 36 who was not living in Australia before the parties’ relationship. She had no assets of significance. Mr Kennedy was living in Australia, aged 67, and had assets worth $18 million dollars. Ms Thorne moved to Australia in February 2007 to marry Mr Kennedy.
The parties were married on 30 September 2007.
11 days before the wedding, Mr Kennedy told Ms Thorne that they were going to see a lawyer to sign a financial agreement, and that if she did not agree to sign it the wedding would be cancelled. Against independent legal advice, Ms Thorne signed the financial agreement four days before the wedding.
Shortly after they were married, Mr Kennedy and Ms Thorne entered into another family law financial agreement. Ms Thorne again signed, even though her independent lawyer advised against it.
Mr Kennedy and Ms Thorne separated four years later.
Ms Thorne made an application to the Family Court of Australia to have the financial agreement set aside for unconscionable conduct and undue influence.
At the first trial, the judge set aside the family law financial agreement. Mr Kennedy appealed to the Full Court of the Family Court, which reversed that decision.
Ms Thorne then appealed to the High Court of Australia, which restored the original decision to set aside the financial agreement. This decision was made on the basis that Ms Thorne was entirely dependent on Mr Kennedy for her residential status in Australia. She was also financially dependent on him. This put her at a special disadvantage. The High Court found that Mr Kennedy exploited that disadvantage to secure her agreement.
Why do financial agreements fail?
The most common reasons that family law financial agreements are set aside are:
- The agreement was obtained by fraud or duress
- A party failed to disclose assets or information relevant to the agreement
- The agreement was entered into to defeat or defraud a creditor or with reckless disregard to the interest of a creditor
- There have been significant changes to either or both parties’ circumstances, making it impractical to carry out the agreement
- After making the agreement, there was a change in circumstances relating to a child, and it would result in hardship for the child or their carer were it not set aside
Had Mr Kennedy suggested the financial agreement well before his marriage to Ms Thorne, the Court may have decided differently. He needed to ensure that Ms Thorne had sufficient time to consider and negotiate the proposed agreement. However, the High Court did comment that where a financial agreement is drastically unfair to one party, that unfairness may itself be an indicator that the disadvantaged party was not making a decision free of influence by the other party.
Is a family law financial agreement right for you?
A properly prepared financial agreement can be a useful tool in protecting your assets. Court proceedings can be expensive, time consuming and emotional. A financial agreement can be a way of avoiding the need for any court proceedings or costly legal action at the time of your separation.
We recommend that you consider a family law financial agreement in the following circumstances:
- If you have substantially greater wealth than the other party and you wish to specify how this wealth is distributed
- If you have children from a previous relationship and you wish to preserve your assets for their benefit
- If you have a specific asset that you want to protect, such as a business or family trust
- If you’re likely to receive a large inheritance from your family which you wish to exclude from the asset pool
You should also consider a financial agreement even if there is not a great asset disparity, but to simplify the separation process, and offer you certainty.
Financial agreements are complex and technical documents which must be drafted strategically to ensure that they are fit for purpose. They require specialist legal advice. Our family law team includes Accredited Family Law Specialists and family law experts ready to assist you with the preparation of a financial agreement.
This article was written by Senior Associate, Jessica Wynd.
DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.