When it comes to divorce or separation, financial concerns are often at the forefront of the minds of those involved. One question that frequently arises is whether a Binding Financial Agreement (BFA) can be used to completely waive spousal maintenance obligations. This is an important consideration for many Australians contemplating marriage, already married, or those facing separation or divorce who want clarity about their financial future.
Can a BFA Completely Waive Spousal Maintenance?
Yes, a Binding Financial Agreement can indeed include provisions to waive spousal maintenance entirely between parties. Under the Family Law Act 1975 (Cth), parties to a marriage or de facto relationship have the right to enter into legally binding agreements that can determine how their financial matters will be handled both during their relationship and in the event of a breakdown.
Section 90E of the Family Law Act specifically allows for spousal maintenance to be addressed in a BFA. This section states that a provision in a BFA that excludes or limits the right of a party to the agreement to apply for an order for spousal maintenance is binding on the parties if, at the time the agreement was made, the party could adequately support themselves without an income-tested pension, allowance, or benefit.
However, for such a waiver to be enforceable, certain conditions must be met. The BFA must comply with all the formal requirements set out in the Family Law Act, including that both parties must receive independent legal advice before signing the agreement. This advice must cover the effect of the agreement on the rights of that party and the advantages and disadvantages of making the agreement.
The Legal Standing of Maintenance Waivers
The courts have generally upheld provisions in BFAs that waive spousal maintenance rights, provided the agreement meets all legal requirements and is not entered into under duress, coercion, or as a result of unconscionable conduct. The landmark case of Thorne v Kennedy [2017] HCA 49 highlighted the importance of ensuring that BFAs are entered into freely and with full understanding of the implications.
In this case, the High Court of Australia set aside two financial agreements (a pre-nuptial and a post-nuptial agreement) on the grounds of unconscionable conduct and undue influence. This case serves as a reminder that while a BFA can waive spousal maintenance, the circumstances under which the agreement is made are crucial to its enforceability.
It’s worth noting that a waiver of spousal maintenance in a BFA does not affect the rights of children to child support, which is governed by separate legislation and cannot be contracted out of through a BFA.
Requirements for a Valid Waiver
For a waiver of spousal maintenance to be valid and enforceable within a BFA, several key requirements must be satisfied. Firstly, the agreement must be in writing and signed by both parties. It must include a statement from each party that they have received independent legal advice about the advantages and disadvantages of the agreement, and a certificate from the lawyer confirming this advice was provided.
Secondly, the waiver must be clear and unambiguous. The language used should explicitly state that the parties intend to waive their rights to seek spousal maintenance now and in the future. Vague or ambiguous wording could lead to disputes and potentially render the waiver ineffective.
Finally, the agreement must not be affected by fraud, duress, undue influence, or unconscionable conduct. Both parties must enter into the agreement voluntarily and with a full understanding of its implications.
Important Considerations Before Waiving Spousal Maintenance
Financial Circumstances and Self-Sufficiency
Before including a spousal maintenance waiver in a BFA, both parties should carefully consider their current and future financial circumstances. For a waiver to be binding, the party waiving their right to maintenance must be able to adequately support themselves without relying on government assistance. This assessment should take into account factors such as earning capacity, assets, health, and other resources.
It’s also important to consider how circumstances might change over time. A person who is financially independent at the time of signing the BFA may not remain so in the future due to factors such as illness, disability, caring responsibilities, or changes in the job market. While a BFA can provide certainty, it may not always account for unforeseen changes in circumstances.
Parties should also consider the length of their relationship when contemplating a maintenance waiver. The longer the relationship, the more intertwined financial affairs tend to become, and the more difficult it may be to fairly separate those affairs without some form of ongoing support.
The Court’s Power to Set Aside BFAs
While a properly drafted BFA with a spousal maintenance waiver is generally enforceable, it’s important to understand that courts have the power to set aside such agreements in certain circumstances. Section 90K of the Family Law Act outlines these circumstances, which include fraud, impracticality, changes in caring for children, and unconscionable conduct.
A significant change in circumstances, particularly one that results in a child of the relationship suffering hardship if the agreement is not set aside, may lead a court to invalidate a BFA. For instance, if a party becomes unable to support themselves due to caring for a child of the relationship, a court might set aside a BFA that waives spousal maintenance.
Courts may also set aside a BFA if it was obtained through fraud, such as one party failing to disclose significant assets or liabilities. Similarly, if a party entered into the agreement under duress or undue influence, or if enforcing the agreement would be impractical due to a material change in circumstances, the court may invalidate it.
The Role of Independent Legal Advice
Independent legal advice is not just a formal requirement for a valid BFA; it’s a crucial safeguard to ensure that both parties fully understand the implications of waiving spousal maintenance. A binding financial agreement lawyer can explain how such a waiver might affect a party’s financial situation in various scenarios, helping them make an informed decision.
The lawyer providing advice should thoroughly assess the client’s current and potential future financial circumstances, explaining the rights they would be giving up by waiving spousal maintenance. This advice should be tailored to the individual’s specific situation, taking into account factors such as age, health, earning capacity, and caring responsibilities.
It’s important that each party has their own independent lawyer, to avoid any conflicts of interest and to ensure that each party’s interests are properly represented. The lawyers should also ensure that there is no pressure or coercion involved in the decision to enter into the BFA.
Alternatives to Complete Waivers
Partial or Conditional Waivers
Instead of completely waiving spousal maintenance, parties may consider including partial or conditional waivers in their BFA. For example, the agreement might specify that spousal maintenance will only be payable in certain circumstances, such as if one party becomes unable to work due to illness or disability, or if one party needs to reduce their working hours to care for children.
Parties might also agree to time-limited spousal maintenance, where payments are made for a specified period after separation to allow the receiving party to become financially independent. This approach recognises that a party may need some time to establish themselves financially after a relationship breakdown, without creating an indefinite obligation to provide support.
Another option is to link spousal maintenance to specific events or milestones, such as the completion of education or training, or the youngest child starting school. This approach can provide a clear pathway to financial independence for the receiving party while giving both parties certainty about when the obligation will end.
Lump Sum Provisions
An alternative to ongoing spousal maintenance payments is to include provisions for a lump sum payment in the BFA. This approach can provide financial security for the receiving party while giving the paying party certainty about their financial obligations. A lump sum payment might be particularly appropriate in situations where the parties have substantial assets but limited income.
The amount of a lump sum payment should be carefully calculated to provide adequate support for the receiving party, taking into account factors such as their living expenses, future earning capacity, and any costs associated with retraining or education. It should also be proportionate to the wealth of the parties and the length of their relationship.
Parties considering a lump sum provision should also consider the tax implications, as well as how the payment might affect eligibility for government benefits or support. It’s advisable to seek financial advice as well as legal advice when considering this option.
The Importance of Regular Reviews
Updating BFAs as Circumstances Change
Even the most carefully drafted BFA may not account for all possible future scenarios. As such, it’s advisable for parties to regularly review their agreement to ensure it remains appropriate for their circumstances. This is particularly important following significant life events such as the birth of a child, a substantial change in financial circumstances, or a serious illness or injury.
If circumstances have changed significantly, parties may agree to terminate or amend their existing BFA and enter into a new agreement that better reflects their current situation. This process requires the same formalities as the original agreement, including independent legal advice for both parties.
Regular reviews can help identify potential issues before they become problematic and can provide an opportunity to address changing needs and expectations. They can also help ensure that the BFA remains enforceable and is not set aside by a court due to a material change in circumstances.
Seeking Legal Advice Before Making Changes
Any changes to a BFA should be made with caution and only after obtaining proper legal advice. Attempting to modify a BFA informally, without following the required legal procedures, may render the entire agreement unenforceable. This could leave both parties vulnerable and uncertain about their financial rights and obligations.
Before making any changes, parties should consult with their respective lawyers to understand the implications of the proposed modifications. This includes understanding how the changes might affect their rights to property division and spousal maintenance, as well as any tax or social security implications.
It’s also important to ensure that any changes to the BFA are made voluntarily and with full disclosure by both parties. Pressure or coercion to modify an agreement may provide grounds for a court to set it aside in the future.
Need Help with Your Binding Financial Agreement?
Binding Financial Agreements, including those that waive spousal maintenance, can provide certainty and peace of mind for couples. However, they are complex legal documents that require careful consideration and proper legal guidance to ensure they are valid, fair, and enforceable.
As a law firm in Australia, my law firm can help you navigate the process of creating a BFA that meets your specific needs and circumstances. Our team understands the nuances of family law and can provide the advice you need to make informed decisions about your financial future. Contact our team today by calling 1300 529 888.