Entering into a Financial Agreement with your partner can be a very valuable and empowering way to make sure you control what happens to your assets during and after the relationship. Approached as a collaborative exercise, it can also help strengthen your relationship and offer peace of mind in the event of a separation.
To minimise the chances of your agreement being challenged down the track, below are some best practice tips.
Take your time
It is common for family lawyers to see agreements being presented as late as a week out from a wedding. The truth is that even a month out from the wedding date may be too late if the agreement is ever challenged in court.
When you are planning a wedding, a certain element of anxiety and stress is introduced alongside the planning. Courts have been known to find that there is a level of duress involved in presenting your partner with a financial agreement to sign once invitations have been sent, especially if there are international guests attending. It is very possible to see how a party could feel under pressure to sign, even if the agreement isn’t favourable to them, rather than go to the embarrassment and expense of cancelling the wedding at that late stage.
By forcing the issue, you run a far greater risk that the agreement will be challenged down the track. It is far preferable to enter into the agreement after the wedding, if presented with it a few weeks immediately before the nuptials. Even leaving it for a few weeks after the wedding makes all the difference, because the time pressure has lifted. You can then ensure that both parties have had adequate time to digest the agreement, and you stand a much greater chance of the agreement being enforceable if you split.
If you’re keen to keep things moving, just diarise a time with your lawyer once you’ve returned from the honeymoon. Everyone has a cooler mind, the pressure is off and you can turn your mind to the agreement without the stress.
Be transparent about your finances
There is no particular obligation in the Family Law Act to make full and frank disclosure to your partner before entering into a financial agreement. However, one of the potential grounds for setting aside the agreement is that there was material non-disclosure by a party.
To illustrate that point, you don’t need to provide the exact value of your ancestral home, but you do need to inform your partner that you have an ancestral home so that they can make the relevant enquiries, should they see fit.
More disclosure is usually better. If you’ve provided evidence of all your assets, liabilities, superannuation and financial resources to your partner, including your income, it can eliminate or significantly erode an argument that the agreement is subject to being set aside on that basis. Making full and frank disclosure before entering into the agreement means both parties can meaningfully consider the effect of the agreement on them and the advantages and disadvantages of entering into it.
This also means that there will be evidence on the solicitors file of that disclosure being provided to the other party. If you’re forthright about your financial position, it’s a way to increase the integrity of the document.
It is useful when starting the process of preparing a financial agreement that you meet with your accountant or have a joint consultation with the accountant and your lawyer, so it is clear what your financial position actually is. Where there are a number of different entities and complicated financial affairs having the input of your accountant can assist in ensuring that all property that needs to be protected is accounted for and properly identified in the agreement.
Take a holistic view
If you’re planning on entering into a financial agreement, you may also want to consider entering into other supplementary documents at the same time. For example, if it’s your second relationship, you may want to make sure that your wills both reflect the understanding you have about the treatment of property you have included in the agreement after your death. A financial agreement will help if you and your partner split, but it is not binding upon your estate if you die.
A financial agreement can also be really useful if you own a business. If your relationship breaks down and your ex-spouse makes a claim against the business, it might significantly impact the viability of that business moving forward. In this instance, a financial agreement can be a useful business planning tool. It can help clarify issues around the ownership of the business, how it might be valued down the track, whether you want to exclude the possibility of a claim or division in the first few years, while it’s being established or all together and how the business is to operate following a split. Often entering into or amending a partnership agreement, trust deed or company constitution, subject to how your business is structured, to mirror relevant provisions of your financial agreement in these respects, will ensure less disruption to your business if separation does occur.
When we work with clients to draft a financial agreement, we often suggest working with other experts as well, such as structuring and estate planning lawyers, accountants, financial planners and/or business and commercial lawyers, so that your affairs can be dealt with holistically.
Consider using a mediator or counsellor to assist in negotiations
If your asset pool is substantial, or if your affairs are complex, you might want to consider using a mediator to assist you and your partner to agree to the terms of your financial agreement.
Rather than one party drafting the agreement and presenting it to the other to sign, having the assistance of a neutral mediator in negotiating the terms of the agreement can assist both parties to be heard. Parties to the agreement can potentially express any concerns without time pressures, and have the opportunity to make suggestions and create something that works for all parties. This may make it more difficult for your partner to come back later on and say that they didn’t understand the agreement or felt forced into it.
In addition, if you are having difficulty raising the topic of a financial agreement with your partner you could consider using a counsellor to assist in driving those discussions.
Review them regularly
Financial agreements are a little bit like an insurance policy. It’s always best to review it at least every three to five years, subject to changes in your circumstances. If there is a material change in your life, for instance if you buy or sell a significant asset, that’s another trigger to revisit the agreement.
Life isn’t static, and we have no capacity to look into a crystal ball and know what’s going to transpire. Perhaps you and your partner sign an agreement that contemplates you both working full time and keeping your own income and assets if you split and then some time into that relationship you bring a child with very high needs, who requires one partner to stop all paid work and become a full-time carer. That would be a compelling reason to revisit the agreement.
There are costs involved, but ultimately, a financial agreement won’t serve its purpose if it isn’t up to date and doesn’t factor in significant changes that have happened since it was signed.
This publication has been carefully prepared, but it has been written in brief and general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.