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What is a Financial Agreement?

A Financial Agreement is a document that sets out in advance how the property of a marriage or a de facto relationship will be dealt with in the event of a separation. It can prevent either party from bringing a claim against the other for a property settlement following the breakdown of a marriage or de facto relationship.

A Financial Agreement is:

• A legally binding contract entered into by people before, during or after they were married or in a de facto relationship together.

• An enforceable written agreement setting out how property and financial resources will be divided following the breakdown of a marriage or de facto relationship.

• An agreement of the parties to contract out of, and not be bound by, the sections of the Family Law Act 1975 that generally apply to matrimonial/de facto property settlements.

• Similar to a Will, in that it sets out who gets what property if a marriage or de facto relationship dies.

Why would you want a Financial Agreement?

A Financial Agreement is a relatively quick, inexpensive and stress-free way for parties to determine how their assets and property will be divided at the end of a marriage or de-facto relationship. A Financial Agreement is a lot cheaper and quicker than applying to court for property orders after a separation.

Example 1: A couple separates after a marriage or a de facto relationship with no Financial Agreement in place. If they cannot agree about how to divide their property then one of them may need to apply to a court for orders that the other party pays them money, or transfers property or superannuation to them.

The process of applying to a court for a family law property settlement is often expensive, time-consuming and stressful and should only be commenced as a last resort if the parties involved cannot agree on how to divide their property.

Example 2: A couple separates after a marriage or a de facto relationship and there is a Financial Agreement in place.

The couple has already decided in their Financial Agreement about how they will divide their property if they ever separate, so there is no need for court proceedings. Both parties will save money by not having to go to court, and their property can be divided quickly as set out in the Financial Agreement. Both parties can avoid the stress and the cost of being involved in court litigation.

How does it work?

A Financial Agreement can protect some or all of your property from any future claim following a separation. A Financial Agreement can also protect future property that has not yet been acquired.

Example: Naomi has inherited her parent’s home and wants to be certain that it will be protected from any future property dispute with her partner if they should ever separate.

Naomi and her partner make a Financial Agreement stating clearly that Naomi’s home will not be taken into account for the purposes of any future family law property settlement.

If Naomi and her partner separate, Naomi has the security of knowing that her parent’s home is “off the table” as far as any future property dispute with her partner is concerned.

What are the advantages of entering into a Financial Agreement?

• A Financial Agreement provides a final property settlement on terms that a couple decide between themselves. It gives them the power to decide how their assets and/or spousal maintenance entitlements will be dealt with following separation.

• A Financial Agreement enables you to avoid the significant time and expense of having a court decide how your property will be divided, possibly on terms that you are not happy with.

• A Financial Agreement is an effective estate planning tool that can ensure your property can pass to successive generations as intended.

• A Financial Agreement provides stamp duty and Capital Gains Tax relief for separated couples (subject to some exceptions)

Some disadvantages of entering into a Financial Agreement:

• By entering into a Financial Agreement you are contracting out of your right to have a court determine your entitlement to property settlement and/or spousal maintenance. A court might determine that you are entitled to a more favourable property settlement than your Agreement provides.

• A Financial Agreement may remain legally binding despite any unexpected change of circumstances including serious injury, ill health or death, or the worsening of a party’s financial circumstances due to loss of employment or failure of a business.

• A Financial Agreement may remain legally binding despite significant increases or decreases in the value of the property, financial resources or liabilities of each party. For example, if the value of your real estate property were to decrease significantly in value in the next few years you would still be bound by the terms of the Agreement.

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We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.

This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

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