Financial Agreements – dispelling the fear

A recent article regarding financial agreements appeared in the Sydney Sun Herald, titled, “Lawyers advise first wives to ditch pre-nup”.  It claimed that an increased number of law firms have been refusing to draft financial agreements due to their inherent ‘risk’ and are warning client’s, in particular, women, to avoid entering into them.

As a firm that practices exclusively in family law, our view is that the warning is both overzealous and misleading.

While it cannot be denied that there are risks in entering into a Financial Agreement, the risks usually identified, and those identified in the article, are not unique to Financial Agreements alone.

The usual arguments advanced against Financial Agreements are that:

  1. they can be overturned because:
    • they have not been drafted properly;
    • they have been signed under duress;
    • one party has failed to disclose a material financial matter/s; or
    • there has been a significant change in the financial or other circumstances of the parties since the agreement was made;
  2. they can be expensive; and
  3. they cannot account for all of the contingencies of life and may result in one party being financially disadvantaged at a later stage.

In isolation, these seem to be very compelling reasons to steer clear of Financial Agreements. The other alternative for parties is to formalise their property settlement upon the breakdown of the relationship, via a Consent Order or an imposed Court Order. However, Consent Orders and Court Orders are not immune to being overturned, varied or appealed due to similar reasons. These also have risks.

Issue 1: Risk of financial agreements being overturned

 

One only needs to look to section 79A(1) of the Family Law Act 1975 to see that, similarly, Consent Orders may be set aside for reasons including (but not limited to):

  • miscarriage of justice by reason of fraud or duress;
  • miscarriage of justice by reason of suppression of evidence (i.e. non-disclosure of a material financial matter); and/or
  • that, in the circumstances that have arisen since the making of the order, a child/children of the relationship, or the person who has the caring responsibility of a child/children of the relationship, will suffer hardship if the Order is not varied or set aside.

Furthermore, if Consent Orders are not drafted properly but are nevertheless made on a final basis, parties must apply to the Court to cure the error. If there is disagreement over the interpretation of the drafting error, the matter may end up back in litigation;

Both Consent Orders and Court Applications especially, can be expensive. The actual cost depends on the length of the negotiations, the complexity of both the financial and emotional circumstances of the parties, and the effect of judicial discretion – that is, the very wide discretion inherent in property proceedings that allows the Court ‘… to do justice according to the needs of the individual case, whatever its complications might be’ (Norbis v Norbis (1986) 11 CLR 513 at 520).

Issue 2: Associated cost of financial agreements

 

There is no ‘standard’ Financial Agreement, Consent Order or Court Application.

Just as there is no standard matter, there is no standard set of costs in each case.

Rather, the cost in each case is specific to and dependent on the following circumstances (which include but are not limited to):

  • the complexity of the financial circumstances of the parties;
  • the intentions of the parties;
  • the advice received by each party and/or the view each party forms about their entitlements;
  • whether an agreement is reached between the parties or the matter is required to be litigated;
  • whether Counsel or other experts are required to be engaged;
  • the length of the negotiations and/or litigation; and/or
  • the complexity associated with drafting any agreement reached or orders sought.

While we regularly provide our client’s with an estimate of costs prior to the commencement of their matter and at various stages throughout, in each matter they are subject to change depending on the factors above. The expense of and/or the fluctuation in cost is again, not exclusive to Financial Agreements.

Issue 3: Inability to account for future contingencies

 

There is a misconception that ‘pre-nups’ cannot take into account future contingencies.

‘Sunset clauses’ are often included in Financial Agreements to allow changing circumstances to be taken into consideration.
A sunset clause is a clause that makes the agreement, or part of the agreement, no longer effective if a certain event occurs or after a certain date or time. For example:

  • the birth of a child/children of the relationship;
  • a party becoming permanently disabled or seriously ill;
  • the loss of employment by one party;
  • a party receiving an unexpected large inheritance; and/or
  • the relationship continuing for a long period.

Sunset clauses can provide that if the parties do not negotiate a fresh agreement by a certain date or the occurrence of a certain event (examples detailed above):

  • particular terms of the financial agreement will no longer operate and the Family Law Act 1975 will apply, or
  • particular terms in the financial agreement will not operate and other terms in the financial agreement will operate instead.

Is a pre-nup or Financial Agreement for you?

 

Just as parties have a right to apply to the Court for a property settlement and/or spouse maintenance, they also have the right to contract out of the Family Court’s ability to otherwise impose a decision upon them.

The main risk, as far as we are concerned, is not in entering into a Financial Agreement itself, but rather, obtaining the required independent legal advice from an inexperienced lawyer, a lawyer practicing outside of his/her normal jurisdiction or primary area of practice. Another risk is working with a lawyer who is willing to cut costs and/or allow a party to enter into the agreement in haste or without due consideration.

Provided a Financial Agreement meets the strict requirements of the Family Law Act 1975, and the agreement is drafted properly by a suitably experienced family lawyer, they offer many benefits.

For further advice in determining whether a Financial Agreement or ‘pre-nup’ is appropriate for you, please contact the team at Damien Greer Lawyers.