Financial Agreements – De Facto versus Marriage
The Full Court of the Family Court has delivered a new judgement regarding whether you can have a binding financial agreement (aka a pre nup) that covers both de facto relationship breakdown and marriage breakdown.
Several years ago the Family Law Act 1975 was amended so that the Act covers de facto property disputes which were previously covered by state laws. Included in the amendments were provisions which enable parties in de facto relationships to enter into binding financial agreements either before, during or after their relationship setting out their agreement regarding financial matters.
Agreements entered into during de facto relationships are covered by section 90UC. Obviously many people who live together subsequently marry. Unfortunately, for reasons which have never been apparent to the legal profession, section 90UJ says that a binding financial agreement between de facto couples “ceases to be binding if the de facto parties marry”. Some have taken the view that when de facto couples decide to marry they must sign a new financial agreement (a pre-nuptial agreement) setting out what will happen to their property if they marry and subsequently separate.
Recently the Full Court of the Family Court (see Piper v Mueller (2015)) considered a case in which the parties had, as a de facto couple, signed a financial agreement under section 90UC which set out what would happen if they separated before marriage, and in the same agreement made the same provisions concerning how their property would be dealt with if they married and then separated. In other words the agreement was trying to fit both situations.
The Full Court of the Family Court considered that there was no legal provision which prevented parties from signing an agreement which was both a pre-nuptial agreement (if they married) and a de facto agreement (if they didn’t marry).
The Full Court said the section 90B financial agreement would only operate in the event of a breakdown of the marriage, which of course requires a prior marriage. On the other hand an agreement under section 90UC ceases to be binding if the parties to the agreement marry each other (section 90UJ(3)).
Thus it is possible for parties to enter into an agreement under section 90UC which is binding and operates while they continue in a de facto relationship and via operation of law ends immediately upon their marriage. On the other hand a section 90B financial agreement only comes into operation when the parties marry. The two agreements therefore are complimentary, not exclusionary. Both may be binding on the parties from the time of execution but “only one can have operative effect”.
Agreements that cover both de facto relationships and marriage
Therefore people who are living together and want the certainty of a financial agreement which sets out what will happen to their assets if they separate, may consider entering into a financial agreement which covers both the de facto, and the marital situation.
At Farrar Gesini Dunn, we have experience in drafting the financial agreements including an agreement which covers both scenarios.