Letter of advice to client as to a proposed financial agreement

I enclose a draft of your proposed financial agreement.

Purpose of the Agreement

The purpose of the Agreement is (delete the following purposes that do not apply):

  • Mutual quarantine of assets –to enable both parties for the future benefit of children of a previous marriage or relationship (or other intended beneficiary) to preserve certain assets of theirs from future claim by the other and limit the agreement to such property OR
  • Unilateral quarantine –to enable one party for the future benefit of children of a previous marriage or relationship (or other intended beneficiary) to preserve from future claim by the other certain assets and limit the agreement to that purpose OR
  • Release of maintenance (after separation) for the agreement to be a mutual release from future maintenance in exchange for a satisfactory property settlement, as a ”clean break” from each other financially

Effect of the Agreement on your rights

This agreement means that one party will be giving up their right to include in the “asset pool” in any future property claim any asset being quarantined by the other party.

There is a clause by which such an asset either may or may not be taken into account (as a financial resource of the party who owns it) in any future court proceedings for property settlement, in favour of the financially weaker party. It is for you both to agree upon this in the agreement as to whether or not a quarantined asset may be indirectly taken into account in that way.

An agreement solely operating as a release of maintenance will prevent any such claim being made in the future, so a party agreeing to waive any further claim to maintenance should only do so as part of a satisfactory property and/or maintenance settlement.

Could the Agreement be set aside by the court?

Yes if there has been fraud (such as non-disclosure of a material matter); an intention to defeat or reckless disregard of the interests of a creditor; any duress, undue influence or unconscionable conduct (taking advantage of any weakness of a party); or circumstances have arisen making it impracticable for the Agreement to be carried out; or where the care arrangements for a child of the parties have materially changed so that a party will suffer hardship if the Agreement is not set aside.

If an agreement includes a third party an intention to defraud, or defeat the property interests of that third party or the reckless disregard of those interests are grounds for the Agreement being set aside.

An agreement operating as a release of maintenance will be of no effect if, at separation (confirmed by the signing of a separation declaration attached to the agreement), a party is in receipt of an income tested pension, allowance or benefit.

[Superannuation. Other grounds to set aside an agreement are where any superannuation has a “payment flag” operating or is an “unsplittable interest”.]

Advantages of making the Agreement

  • The Agreement will implement your joint purpose, as set out above
  • In the case of a quarantine of assets, it will leave all other assets available for any future property settlement proceedings in court

Disadvantages of making the Agreement

  • If you have no children to each other and intend having none, the Agreement will remain legally binding despite any unexpected worsening of a party’s financial circumstances (such as loss of job; failure of a business; serious injury)
  • The Agreement could be set aside in the event of a material change of circumstances relating to a child of the marriage as a result of which a party will suffer hardship if the court does not set the agreement aside

Note – A clause terminating the Agreement upon or within a certain time after the birth of a child (requiring you to make a fresh agreement) could guard against that.

  • A unilateral quarantine of all or most of one party’s assets is likely to produce for the other party a worse ultimate outcome than could otherwise be expected in any later court proceedings

Should we each make or have wills?

Yes. The Agreement will apply in the event of the death of either party, so long as both of you make or have wills now that are consistent with its terms.

Varying or terminating the Agreement

Your Agreement may be varied or terminated by a later agreement between you. A new agreement will be necessary if your marital or de facto status changes.

Next steps

Your partner is required to receive independent legal advice from another law firm before signing the Agreement. If any changes are required, please see me. If not, your partner should take their copy to a lawyer for independent advice and, if approved after receiving that advice, should sign in front of that lawyer (who will sign the certificate at the back of the Agreement). Would you then kindly make an appointment with me, for us both to sign it too. If you have any questions please let me know.

Yours faithfully,