What is the difference between a Financial agreement and a Separation agreement?
When we refer to a Separation Agreement between a married or de facto couple we are also referring to a financial agreement, they are the same thing.
Under the Family Law Act (cth) married or de facto couples are able to make a contract with each other that sets out how the partners have agreed to divide their Assets and Liabilities when the marriage or de facto relationship has ended. This contract is known as a financial agreement and it can be made anytime before, during or after the relationship has ended.
Why should I go to the trouble of arranging a financial agreement?
There is no requirement that the settlement of financial matters between the parties to a marriage, needs to be documented once the marriage has ended. If each of you is employed and you jointly own the matrimonial home and there are very few items of valuable personal property, you could both simply agree to sell the home and divide the proceeds. Each of you could retain your respective assets and go merrily in your own separate ways. This kind of handshake deal, however, would not prevent one of you at some later date making an application for financial orders under the Family Law Act.
What does the agreement do?
The agreement is a substitute for court action and means the parties have negotiated a settlement of their family issues, at least insofar as they concern money and possibly child maintenance issues, without needing the court to impose a solution.
Are there any limits on what can be included in a financial agreement?
The agreement must clearly set out all the financial matters the parties wish to cover, and it can be used in respect of financial matters relating to:
The agreement can exclude some rights of either or both parties (expressly or by implication) and if there are any arguments about which rights are included or excluded, the right to return to the court about those contested rights remains. For example, if the agreement only refers to property rights of the parties and does not mention maintenance, the court may allow a party to apply for maintenance.
The agreement need not be confined to financial matters. It may also purport to waive, on a mutual basis, the rights of the parties under the Family Law Act except for the purposes of ensuring that it is not in substitution for future rights (which the Act does not allow).
One of the advantages of financial agreements is that they are not on the public record. You and your former partner may not want your settlement known beyond the obligatory legal requirements, which only your respective lawyers need know. There is no official registry or repository for financial agreements, other than the files retained by each respective spouse party and their legal advisors.
What requirements make a financial agreement legal and binding?
There are strict requirements for ensuring that a financial agreement will be binding on the parties (see s 90G FLA):
The Legal Review Package helps you to comply with these requirements. In addition to these formal requirements of the Family Law Act it’s important to understand that your financial agreement is like any other contract and subject to the normal principles of Australian contract law.
Why do I need legal advice if we already know what we want to do?
Because the Family law Act says the agreement will not be binding on the parties unless you both receive Legal advice independent of each other before you sign the agreement.
Section 90G of the FLA sets out the conditions that must be met before the agreement becomes binding. Family relationships are different to commercial relationships and it’s common that one partner may exert a certain influence over the other. It’s crucial that any such (duress) be identified as this will ultimately weaken the agreement and leave it vulnerable to challenge at a later date. Following these steps prevents either party from arguing that, when signing the agreement, they did not understand what they were signing or its consequences.
What are Court Orders?
If you cannot agree on how your finances should be divided and you’ve already tried mediation, you can apply to the Family Courts for a Financial Order. Essentially your lawyers will go head to head and after considering arguments from both sides, the court will make the decisions for you.
When a financial order is made, each person listed in the order must follow it, hopefully you will get the outcome you’ve paid for. But there are no guarantees.
On the other hand making a Financial agreement is far less stressful, cost effective and more likely to reflect the wishes of the parties.
Can a financial agreement be cancelled or amended by mutual consent?
No. It has to be terminated, which may be by including a provision to that effect in another financial agreement made in accordance with the law or by making another written agreement (known as a termination agreement). (See s 90J(2) FLA).
Will the agreement stop court action?
The agreement is a substitute for court action and means that the parties have agreed to negotiate a settlement of their family issues, at least insofar as they concern money, property and possibly child maintenance, without the need of a court imposed solution.
The agreement will lessen the reasons for needing to go to court but you can never eliminate access to the Family Court, regardless of how your agreement is drafted.
If one party hides an important fact, the other party can always go back to the Court and argue that their decision to enter the agreement was based on the incomplete or false information disclosed by the other party. It is for the Court’s determination whether it intervenes and overturns the agreement.
A party owes a duty of disclosure to the Court as well as to the other party. The consequences of non-disclosure or false disclosure cannot, for example, be avoided by declaring that both parties have relied upon their own investigations. The Court’s powers to revoke approval of a financial agreement cannot be modified by an agreement between the parties.
Can a financial agreement be set aside and, if so, under what circumstances?
If a financial agreement complies with the requirements set out in the Family Law Act it will be binding on and enforceable against the parties. It is important to remember that a financial agreement is a contract. All contracts can be set aside in certain circumstances, for example, where agreement has been obtained by fraudulent means.
Section 90K of the Family Law Act sets out the circumstances in which a Court may set aside a financial agreement; they are:
Financial agreements are binding and can only be set aside in very specific circumstances.
Do I have to disclose details of all my assets in the financial agreement?
If you don’t deal with every asset in your financial agreement, the rights of the parties in relation to the assets that have not been dealt with may be adjusted in a family law court at a later date (see section 71A FLA). It up to the parties to decide whether any assets are left outside the operation of the agreement.
Do I have to declare all of my earnings, assets and liabilities?
The background to this question is, ‘My wife and I have been separated for two years and I would prefer to keep this information to myself’. The answer is that if one party chooses not to disclose certain facts, the other party can always go to the Family Court in order for it to be determined as to whether the Court should intervene and overturn the agreement. The Court’s powers to revoke approval of a financial agreement cannot be modified by an agreement between husband and wife.
What arrangements can I make for my superannuation?
Yes superannuation can be ‘split’ between the parties to a marriage or it can be ‘flagged’ until it is finally dealt with. The splitting and/or flagging may be included in your financial agreement or by court order.
A superannuation agreement which is part of a financial agreement will only be binding on the parties if the requirements of s 90G FLA are satisfied. Once it is binding, the court is excluded from making orders in relation to the superannuation interest (see s 90MO FLA).
More information about superannuation splitting click here
What rights do you lose once you have signed this agreement?
Unless you can convince a court to set the agreement aside – and you have to have an extremely good reason for this – once you sign this agreement you lose your right to have the court decide on questions the agreement covers. By signing this agreement you forego rights that you would otherwise have on the marriage breakdown in the areas covered by this agreement. This means that the court cannot take into account matters which it otherwise would because you have decided to control your own affairs.
Who pays stamp duty on property transfers?
Stamp duty and Capital Gains Tax (CGT) liabilities may arise when property is transferred from one partner to another such as the matrimonial home or investment property. However the parties will be exempt from paying stamp duty and CGT if the parties have entered into a Financial Agreement with the Agreement being dated prior to the date of the transfer.
Stamp duty and CGT concessions are made available under state and territory legislation if the transfer is made under a financial agreement irrespective of whether the parties are married or in a de facto relationship. The exemptions on stamp duty and CGT under Financial Agreements are only applicable if the transfer of property, whether it is real property or a motor vehicle, is specifically referred to in the Agreement.
To enable the exemption to be processed, the Office of State Revenue must stamp a copy of the Financial Agreement at the date of assessment.
What is a parenting plan?
A parenting plan is a written agreement between the parties about the parenting arrangements for the children. You do not need to go to court about this matter so long as you come to a joint agreement with your former partner. A Parenting Plan template is available here.
What happens if one of us dies?
A financial agreement will continue to operate after the death of a party, and is binding on that party’s legal personal representative (see s 90H FLA). This is important to take note of if you are addressing spousal maintenance in your agreement.
Do I date and sign the financial agreement before I speak with my solicitor?
Under no circumstances should you sign the agreement before you have discussed the agreement with your lawyer and your lawyer has issued a certificate stating they have provided certain legal advice.