Financial Agreements – the good, the bad, and the ugly

Blondie: The way I figure, there's really not too much future with a sawed-off runt like you.

Tuco:  What do you mean?

Blondie: 'Cause I don't think you'll ever be worth more than $3,000.

Tuco:  What do you mean?

Blondie: I mean, our partnership is untied. Oh no, not you. You remain tied. I'll keep the money, and you can have the rope.

Tuco: You filthy, double-crossing bastard! Of all the stinking, dirty tricks...

Blondie: The way back to town is only 70 miles. If you save your breath, I feel a man like you could manage it. Adiós.

Whilst the above exchange may have made for a cracking scene, sadly it reminds me all too much of the family court process and the bitterness that comes with it. Often parties can act in a manner during litigation that their former spouse never saw coming.

One way to avoid the onslaught is to have the proper protections in place....or a fast horse.  That’s where Financial Agreements come in. I often hear people say they are a waste of time and that they don’t hold up in court. That’s partially true, in that an Agreement that doesn’t comply with the somewhat stringent requirements of the Family Law Act will be tossed aside by a court, however properly drafted and executed Financial Agreements are the best level of protection the Family Court can offer to protect your assets from a family law dispute, and protect you from a lengthy and costly family court showdown.

What is a Financial Agreement?

A Financial Agreement is a document that sets out what is to happen to your assets, liabilities, and financial resources in the event you and your partner separate.

The Agreement can deal with everything you own now and acquire in the future, or just particular assets that are important for you to retain, for instance a property you inherited.

Who can have one?

You can enter into a Financial Agreement:

1. Before you marry (known as a Section 90B Agreement);
2. During the marriage (known as a Section 90C Agreement); and
3. After you separate (known as a Section 90D Agreement).

Financial Agreements can also be entered into if you are not, and do intend to, marry. Whether you are in a heterosexual or same sex relationship, you can enter into a Financial Agreement:

1. Before you commence a de facto relationship (known as a Section 90UB Agreement);
2. During a de facto relationship (known as a Section 90UC Agreement); and
3. After the de facto relationship has broken down (known as a Section 90UD Agreement).

What can you include in an Agreement?

Your Agreement can deal with all or just some of your assets, liabilities, and financial resources.

For instance, you may:

1. have inherited property that you want to always keep in your family;
2. have savoured some property from a former marriage that you want to keep for your children;
3. want to protect your business interests; or
4. want to ensure a particular property will remain yours to keep for retirement.

In those instances, you can have an Agreement that provides that certain property will remain yours and cannot form part of a family court application. Alternatively, you might want to deal with everything in your agreement and avoid court altogether.

The legal requirements – the good

In order to be binding:

1. The Agreement must:
   • be in writing;
   • specify under which section of the Act it is made;
   • not deal with matters that were included in a previous Agreement that has not been terminated;
2. Before signing the Agreement, each party must be provided with independent legal advice as to the effect of the Agreement on the rights of that party and the advantages and disadvantages of entering into the Agreement;
3. Each party must be provided with a statement signed by a legal practitioner stating that the advice was given (with a copy to be handed to the other spouse); and
4. The Agreement must be signed by both parties.

Having said that, the Act was amended in 2009 to give the court the power to find an Agreement to be binding even though one or more of items 2-4 above are not met.

Section 90K – the bad

Section 90K provides a list of circumstances where an Agreement can be set aside. Broadly speaking, the list refers to the conduct of the parties. The notion is simple - if you were bad when it came to entering the Agreement, you cannot rely on it. This includes:

1. Fraud (for instance, if you forget to disclose your Cayman Island account);
2. Attempting to defraud or defeat a creditor (for instance, using a Financial Agreement to transfer property to your spouse prior to you entering bankruptcy);
3. the Agreement is void, voidable or unenforceable (i.e. the Agreement must be prepared properly and in accordance with the legislation);
4. Something has happened after the Agreement is signed and it is no longer possible or practical to carry out the Agreement (for instance, you have agreed to give your former spouse the Noosa unit, however it was sold before separation). The Agreement needs to be worded in a way that allows for such contingencies;
5. You had a child or children after the Agreement was signed, and you, your spouse or your child will suffer hardship if the Agreement is not set aside; or
6. Unconscionable conduct (for instance, giving the Agreement to your non-English speaking spouse the morning of the wedding).

The principles of contract law also apply to Financial Agreements, for instance, if an Agreement is uncertain, a court can find it is void.

Court intervention – the ugly

Because the effect of a Financial Agreement is to remove the court’s ability to divide your assets, they can sometimes be a little trigger-happy in setting them aside, and often does, which lead to the 2009 amendments.

The court will set an Agreement aside if it is found to have been signed under duress. That is what occurred in the matter of Moreno[1], after finding that:

• the husband met the wife in a "mail-order bride" scenario;
• the wife spoke no English;
• the husband told her to sign a Financial Agreement, otherwise the relationship would be over;
• the wife’s lawyer gave her advice that the Agreement was disadvantageous to her;
• the husband bullied the wife and was aggressive; and
• the wife effectively had no choice but to sign the Agreement.

The court also set aside an Agreement in Blackmore & Webber[2] in circumstances where the Agreement was signed 3 days before the wedding. The wife was from Thailand and her Visa was about to expire. She spoke limited English, was totally dependent on the husband and heavily pregnant. The court found the wife was at a special disadvantage, and that the husband was aware of the same and took advantage.

Other instances where the court has set an Agreement aside include circumstances where:

• a party has received no or insufficient legal advice;
• the Agreement was amended after the advice was given;
• reference was made to the wrong section of the Family Law Act;
• the certificate of legal advice referenced the wrong section; and
• the certificate of legal advice referred to the wrong parties.

Will the court uphold the Agreements?

I am often asked whether courts do uphold Financial Agreements. The short answer is, yes, they will uphold "the good" – the Agreements that comply with the legislative requirements. Section 90G also enables the court to uphold the "not so good" – Agreements that don't strictly comply with some of the formal requirements but which nonetheless the court determines should be binding because it would be unjust and inequitable otherwise.

In the past 6 months alone, the court has found the following to be binding after an application was made by a party seeking to discard it:

In Piper & Mueller[3], the de facto husband sought to set aside an Agreement because it was made as a "during de facto relationship" Agreement (known as a 90UC Agreement) and an "in contemplation of marriage" Agreement (known as a 90B Agreement). Ordinarily a Financial Agreement will be made under just one section of the legislation. For instance, if the parties are engaged, they would enter into a 90B Agreement. However, there is no reason why the Agreement cannot be a dual Agreement under these circumstances, and the Full Court of the Family Court agreed with the trial Judge who declared the Agreement to be binding.

In Saintclaire[4], the Wife applied to the court to have the Agreement set aside due to undue influence and unconscionability. The wife argued that she was suffering from post-natal depression, was in debt, the husband was abusive, and that the husband exerted undue influence upon her when it came to entering into the Agreement. The court initially agreed with her, and set the Agreement aside. The husband appealed and the Full Court disagreed with the trial Judge, finding that undue influence was not established and therefore finding the Agreement to be binding.

In Duncan & Duncan[5], the Husband argued the Agreement was insufficiently definite, made no provision for a timeframe to comply, was incapable of practical meaning and failed to provide for a frustrating event. However, the court found the Agreement was valid and binding.

In Manner & Manner[6], the wife argued that an Agreement should be set aside because the husband signed only a faxed copy of the Agreement before they married and later signed the original document after marriage. The Judge found there was no requirement for one original document to be signed and the Agreement was entered into when the faxed copy was signed. His Honour was not satisfied that the husband received the requisite legal advice, however nonetheless declared the Agreement to be binding. The wife had sought to rely on the Agreement early post-separation by asking the husband for money she was to receive under the terms of the Agreement, and on that basis the Judge declined to set the Agreement aside.

Financial Agreements are becoming more common as families want to protect inheritances, partners want to protect their business interests and people entering relationships later in life want to protect their future, all of which could be in jeopardy without an Agreement in place. We regularly act for people in negotiating, drafting, and giving advice on Financial Agreements. If you would like more information, please do not hesitate to contact us.

[1] [2009] FMCAfam 1109

[2] [2009] FMCAfam 154

[3] [2015] FamCAFC 241

[4] [2015] FamCAFC 245

[5] [2014] FCCA 2729

[6] [2015] FCCA 3043