Financial agreements are an increasingly common part of 21st century relationships. Financial Agreements may be made by those contemplating marriage (commonly referred to as a Prenuptial Agreement or “pre-nup”) or made during the marriage or made following separation to divide property.
These agreements are a private determination of the parties’ rights and obligations. The terms of the Agreements deal with the couple’s assets during the relationship, at the end of the relationship and can even have an impact on the death of one of the parties.
It is commonly held that a will-maker has a freedom of testation to determine how they would like their assets to be distributed upon their death. However, certain people who meet legislative requirements such as a spouse or former spouse who are not provided for to their satisfaction in a will may be entitled to make a Family Provision application for an order that they receive a greater share of an estate.
When a Court determines a Family Provision application it will take into account a myriad of considerations. A Court will consider whether a Financial Agreement has been signed between the applicant and the deceased person.
The general view taken by the High Court is that rights given by Family Provision are inalienable and it is contrary to public policy to hold a person disentitled to relief merely because they entered into an agreement with the deceased person. Courts in most states have also held that you cannot contract out of making a Family Provision application by signing a Financial Agreement.
In some cases a Financial Agreement can be relevant to a Family Provision application as it explains the totality of a relationship and shows that a person may not expect to receive anything more from their partner’s estate than what the deceased decided to leave them. However, a Family Provision application will still be available to someone even if there is a Financial Agreement but the Agreement can be used as evidence of the nature of the relationship.
New South Wales is the only jurisdiction in Australia that gives parties the ability to “contract out” of their rights to make a Family Provision application. This is usually done with a release of rights clause in a Financial Agreement. However, the release must be approved by the Court to be valid. The Court may approve the release before the deceased’s death in a Family Law property settlement or after the deceased’s death as part of the settlement of a family provision claim.
The release will not be approved by the Court merely because both parties consented to it. The Court will consider whether the release was to the releasing person’s financial advantage or otherwise, whether the provisions of the release were fair and reasonable at the time, and whether independent legal advice was taken and considered.
In Colosi v Colosi, a release clause in a Financial Agreement was not approved by the Court as the judge held that a clause warranting that legal advice was sought is valueless where the other party must have known the warranty to be untrue.
Similarly, in Neil v Jacovou, the Court did not approve a release clause as it found that the independent legal advice sought by the widow was not proper and her entitlement was not fair and reasonable as the release of the rights was not for the widow’s benefit.
Therefore, in all States and Territories, when preparing a Financial Agreement with your partner or former partner, you must also have considerations as to how the document affects your estate plan. Signing a Financial Agreement is not always enough to ensure the intended division of assets after death or prevent a claim. Making your intentions clear and ensuring that both parties have sought appropriate independent legal advice is integral to protecting your interests.