Tips and Traps of Drafting Financial Agreements

by | Apr 26, 2023

This article covers the following traps, and tips on how to avoid them or minimise the risks: 

  1. Changes in the law
  2. Contingencies – changes in the parties’ circumstances
  3. Changes in entities and business operations
  4. Dealing with superannuation
  5. Inequality in bargaining power
  6. Disclosure or lack of disclosure
  7. Quarantining assets
  8. Death

I will end with some further drafting tips:

  1. Checklist of clauses
  2. Drafting checklist

This webinar does not cover the basics of financial agreements under the Family Law Act 1975 (Cth) (FLA). These are dealt with in my previous webinar “Back to Basics”. I will therefore assume that the agreement:

  • is being entered into by spouses or potential spouses (and, possibly third parties)
  • is clear as to which type of agreement it is, for example s 90B – before marriage or s 90UB — before cohabitation of a de facto couple
  • deals with subject matter which can be dealt with in that type of financial agreement
  • complies with the technical requirements of s 90G(1) or s 90UJ(1)

Changes in the law

The Trap – Financial agreements can be used by parties to resolve their financial affairs at the end of a relationship but are often used at the beginning of a relationship, where the challenges of drafting a financial agreement and “getting it right” are greater than when used at the end of a relationship. The case law with respect to financial agreements continues to develop and changes our understanding of when an agreement may be set aside. Importantly, there have been significant retrospective legislative changes in the past with respect to financial agreements and there will likely be more in the future, meaning that the advice given about the agreement, which may not be implemented for 5, 10 or 20 years, may end up being incorrect.


  1. Make sure you have excellent top-up insurance. Don’t be afraid to knock the work back if your client isn’t taking your advice and there is the potential for a large claim.
  2. Give advice in writing which warns the client that the agreement may not be binding or may be set aside due to changes in the law which you cannot predict.
  3. End the retainer once the work is complete. If the retainer remains open, so does your obligation to advise of changes in the law.
  4. If there are major changes to the law, consider writing to clients who may be affected. You are not obliged to do this if you have ended the retainer, but you may end up with more work rather than be on the receiving end of a negligence claim.

Contingencies – changes in the parties’ circumstances

The Trap – The parties and their lawyers are trying to predict or anticipate the future: future incomes and earning capacities, future health and future family including children. 


  1. What are the contingencies? Discuss with your client the contingencies they want to provide for, and those they have not considered. Set out in the agreement the ones they have considered. An example of a recital of drafting for contingencies is: 

“Before executing this Financial Agreement, each party has had regard to the possibility that one or both of them may be subject to a change of circumstances including any or all of:

  1. The birth of a child or children or adoption of a child or children;
  2. Serious illness or injury of one of the parties or a child;
  3. Death of one of the parties;
  4. Loss of employment or capacity for employment;
  5. Failure of a business;
  6. A significant increase or decrease in the value of the property and financial resources set out in Schedules A, B and C;
  7. Receipt of inheritances, gifts or other benefits from their extended families or other sources besides the parties;
  8. The bankruptcy of one of the parties.”
  1. Set out in the agreement how the arrangements will change (if they do) if one or more of these contingencies occur. 
  2. Be wary where one or both parties are of child-bearing age. An agreement can be set aside under s 90K(1)(d) (or s 90UM(1)(g)) if the court is satisfied that:

“since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in s-s (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside …”

Where there are children of the relationship, or may be children of the relationship:

  • Instead of completely quarantining initial contributions it may be preferable to quarantine them for a short period only or until the birth of a child by either terminating the agreement upon birth, or increasing the entitlements of the person likely to be the primary carer. 
  • If possible ensure that the primary carer has appropriate accommodation close to the other parent. That is a double win. The agreement is less likely to be set aside or found not to be binding in part because the housing needs of that party are met, thus reducing the likelihood that an application will be made for it to be set aside, and in part because the requirements of s 90K(1)(d) are less likely to be met. In addition, the parties living close together and so co-parenting arrangements will be easier.
  1. Finally, remind your client that it is necessary to abide by the agreement. If the parties do something not envisaged by the agreement, such as purchase joint property or sell a particular property, the agreement may be unenforceable on the grounds that it has been abandoned, it could be set aside for impracticability under s 90K(1)(c) or s 90UN(1)(e), or set aside for uncertainty or incompleteness under s 90K(1)(b) or 90UM(1)(e). If their circumstances change, the agreement should be reviewed. Many problems arise when parties simply put the agreement in the bottom drawer, forget about it and do not act in accordance with the agreement. Clients need to regularly check that the assumptions underlying the agreement have not changed. 

Changes in entities and business operations

The Trap – If a number of entities are to be quarantined, they need to be referred to precisely, and the agreement may need to be flexible enough to cover any re-structuring. The operations of a business may be moved from one entity to another, a trust may be interposed, directorships and shareholdings may change, part of the business sold, a new business acquired or developed, and new entities formed. The disclosing party can’t disclose a non-existent entity and it is difficult to draft an agreement to protect an entity which doesn’t yet exist. A party’s interest in an entity at the end of the relationship may be different to the interest when the agreement was executed.


  1. Only define the quarantined entities solely by name if the client is absolutely sure they will not change name, ownership or structure.
  2. Quarantine a business by description of the nature of the business. For example, as “the husband’s interest in the cheese making business and the entities which operate and own that business from time to time, currently Cheese Australia Pty Ltd and the Cheese Australia Family Trust”. Such an approach though runs the risk that at the end of the relationship the business may do other things such as produce other dairy products, have an online store and a cellar door café which may mean that the business is not quarantined or is only partially quarantined, but at least the original business can be protected even if the corporate or trust structure changes.
  3. Endeavour to cover all possible entities. I have set some examples out in the powerpoint but I cannot guarantee that they will work in all circumstances. The current entities should be listed in the Annexure detailing that party’s quarantined property but a clause like one of the following would be relied on to broaden the reach of the quarantined entities eg: 

“Albert’s Excluded Property” means:

  1. the Property listed in Schedule A
  2. all Entities within the Smith Group of Entities from time to time including at the Separation Date whether such Entities are successors to previous Entities or new Entities whether or not created for different purposes;
  3. any Property or Entity to which Albert may become entitled or have an Interest in as and from the date of this Agreement or otherwise derived therefrom or which may be established (whether wholly or partly) for the benefit of Albert or his children;
  4. any Property or Entity acquired by or to which Albert becomes entitled or has an Interest in as and from the date of this Agreement by way of:
    1. gift or inheritance;
    2. a distribution or entitlement arising from or in relation to an Entity in the Smith Group of Entities; or
    3. an exercise of discretion or power by or in relation to an Entity in the Smith Group of Entities;
  5. any position of Control or influence which Albert may now have in relation to any Property or any Entity or any position of Control or influence to which Albert may become entitled by way of:
    1. gift or inheritance;
    2. a distribution or entitlement arising from or in relation to an Entity in the Smith Group of Entities;
    3. an exercise of discretion or power by or in relation to an Entity in the Smith Group of Entities;
  6. distributions or benefits from, or entitlements in, Entities inherited or derived by Albert from an Entity in the Smith Group of Entities, including:
    1. loan accounts;
    2. unpaid beneficiary entitlements in favour of Albert; or
    3. or any other Interest or right arising from Albert being a beneficiary of such Entities; and
  7. his superannuation entitlements from time to time

and Albert’s Excluded Assets shall not include any unpaid beneficiary entitlements or loans owing by, or other entitlements in, Entities comprising Sally’s Excluded Assets.”


“Separate Property” means, for each party respectively, any property, real or personal, tangible or intangible, which is:

  1. The assets and the value of superannuation entitlements of each party as set out in Annexure “A” of this Agreement for Albert and as set out in Annexure “B” for Sally, even if such assets are later transferred in whole or in part to the other party or co-mingled with the assets of the other after the date of execution of this Agreement;
  2. All property acquired by each party since the date of the parties’ cohabitation by way of gift, trust distribution, devise, bequest or inheritance, and all property acquired in exchange, conversion or substitution for such property;
  3. All income or other gains derived or to be derived from a party’s separate property whether by sale, exchange, investment, disposition or by dealing or attributable to enhancement or appreciation of that property due in whole or in part to market conditions or to their services, skills or efforts;
  4. Any future property acquired after the parties’ execution of this Agreement in the name of any of the trusts or entities that form part of each party’s separate property; 
  5. Any interest in a trust as a beneficiary of a discretionary trust or unitholder in a unit trust;
  6. Any award of damages that may be acquired by each party as compensation for pain and suffering, or future economic loss, or as a result of a personal injury; and

deemed to be separate property subject to the specific terms of this Agreement.

  1. Superannuation

The Trap – Superannuation may be a problem in pre-separation agreements, because of the difficulties of identifying the fund, giving procedural fairness, working out a split, naming the fund and ensuring the terms are enforceable. Sections 90XH and 90XJ, which set out some of the legislative scheme, are hard to reconcile when doing a superannuation split in a financial agreement. Section 90XH states that superannuation interests do not need to be in existence when a financial agreement is made, but s 90XJ requires that the superannuation interest be identified. How can it be identified if it is not in existence? So, the proposed split may be of ABC Union Fund, but by the time the parties separate, that interest no longer exists as the party has rolled over their superannuation into another fund.

Self-managed superannuation funds (SMSFs) exacerbate the problem. When the agreement is entered into the parties may, for example, be members of retail funds and later one or both may move their superannuation to a self-managed superannuation fund. The superannuation which is quarantined needs to be able to be identifiable and traceable into the new fund. If both parties are members of a SMSF, the financial agreement will need to identify the party who will retain the fund (which doesn’t exist when the parties entered into the agreement) and which party will rollover their interest into another fund. 

What if the parties use the SMSF to purchase a lumpy asset such as the premises on which a business operates? The agreement needs to be drafted in such a way as to ensure the party retaining the business has the option of retaining the business premises. But the parties may not know at the time they enter into the agreement they will have an SMSF when they separate and what assets that SMSF will own (such as the premises for a business which doesn’t yet exist) and don’t know the respective entitlements of each member and how a rollover might be achieved.


Accept that the technical requirements of a superannuation split under the Family Law Act are harder to meet in a financial agreement than a court order and therefore the parties should either: 

  1. Not have a superannuation split in an agreement if the parties have not yet separated; or
  2. Include a formula or method of calculating the split and provide in the agreement that the parties will obtain orders to implement the split. So, for example, the parties will seek orders to implement a split so that they each have 50% of the total increase in superannuation during the course of their relationship.

Inequality in bargaining power

The Trap:

One party is almost always proposing a financial agreement to protect their own rights as they believe they will be better protected by a financial agreement than under the discretion available to family law courts under s 79 or s 90SM FLA. It is rarely the case that both parties will be advantaged by the agreement. One party is almost always disadvantaged by it.

If the agreement seeks to impose an outcome which is very unfair to the weaker party, or there is little or no option or time for negotiations, or both, then the agreement may be at considerable risk of being set aside. 

Since the High Court decision of Thorne v Kennedy [2017] HCA 49; (2017) FLC 93-807, there is more concern among courts and legal practitioners that financial agreements should not result in a “bad bargain” for one of the parties. There is, of course, no requirement that the terms of a financial agreement be “just and equitable”, “proper” and “appropriate” as s 79 (or s 90SM) property settlement orders must be, but a finding of undue influence or unconscionable conduct is more likely to be made where the agreement is a bad bargain. A finding that an agreement is a bad bargain will not be made in isolation of a vitiating factor, such as fraud, undue influence or unconscionable conduct. Therefore, in drafting, negotiating and executing an agreement it is important that legal practitioners and their clients avoid falling foul of vitiating factors. 

Undue influence is caught by s 90K(1)(b) and s 90UM(1)(e) as a ground for an agreement to be set aside for being void, voidable or unenforceable. It occurs when a weaker party is deprived of free agency and influenced into willing acceptance. 

For unconscionable conduct, which arises under both s 90K(1)(b) and (e) and s 90UM(1)(e) and s 90UM(1)(h), the conduct must be so harsh or unreasonable that it goes against good conscience; no informed person would agree to enter the contract. 

A finding of unconscionable conduct requires that:

  1. The innocent party is subject to a special disadvantage which seriously affects the ability of the innocent party to make a judgment as to the innocent party’s own best interests.
  2. The other party must unconscientiously take advantage of that special disadvantage.
  3. The other party must have known or ought to have known of the existence and effect of the special disadvantage.

I will discuss fraud in relation to non-disclosure shortly.

On the other hand, if an agreement gives the weaker party entitlements which are close to the range of their entitlements under s 79 or s 90SM, then that party is less likely to seek to set aside the agreement and less likely to succeed in an action to set it aside.

So, what is a bad bargain? 

In Beroni & Corelli [2021] FamCAFC 9; (2021) FLC 94-004 the Full Court of the Family Court considered an appeal against findings by the trial judge that an agreement should be set aside for undue influence and unconscionability. The agreement provided that regardless of the length of the parties’ relationship, the wife had absolutely no financial recourse if it came to an end. So, she got nothing.

The trial judge described the terms of the agreement as “manifestly unfair”, “simply outrageous” and “stark improvidence”. These findings were not the entire basis upon which there was found to be undue influence and unconscionable conduct such that the agreement should be set aside, but the fact that it was a bad bargain was one factor amongst the many factors taken into account. The Full Court upheld the appeal.

The High Court judgment in Thorne v Kennedy has lessons for legal practitioners who are negotiating and drafting financial agreements, which are particularly relevant when looking at whether there is a vitiating factor (such as undue influence and unconscionable conduct) putting the agreement at risk of being set aside under s 90K(1)(b) or s 90UM(1)(e) because it is void, voidable or unenforceable. The High Court listed six factors (which were not intended to be exclusive) which should be considered when taking instructions, negotiating, drafting and advising on financial agreements. They are:  

  1. Whether the agreement was offered on a basis that it was not subject to negotiation. This is the sign it or the marriage won’t go ahead scenario;
  2. The emotional circumstances in which the agreement was entered including any explicit or implicit threat to end a marriage or to end an engagement; 
  3. Whether there was any time for careful reflection. For example, a professional person used to dealing with legal mattes will need less time for careful reflection than a new immigrant with English as a second language; 
  4. The nature of the parties’ relationship;
  5. The relative financial positions of the parties; and
  6. The independent advice that was received and whether there was time to reflect on that advice.


  1. Include a recital or clause confirming that neither party has been subject to undue influence or unconscionable conduct. These are not fool-proof. Undue influence and unconscionable conduct are technical terms and even with the benefit of legal advice a party may not know what they mean, or may sign the agreement anyway. It may be better just to refer to “pressure”, but also not to rely on such a clause to overcome the possibility that there was pressure.
  2. Undue influence or unconscionable conduct may be established from the surrounding circumstances regardless of a recital or clause, so try to remove the possibility of these vitiating factors being established. From Thorne v Kennedy we know that an agreement is more likely to be upheld if:
  • There were negotiations between the parties, rather than one party being told to sign the first version “sign it or I leave the relationship”. Therefore, it is helpful if there is a paper trail to prove that there were negotiations;
  • The negotiated changes are substantive, or at least not just correcting minor drafting errors;
  • There was time for “careful reflection”. The time required will vary depending upon the literacy, education, emotional and other support and other circumstances of the weaker party. A recital can be included in the agreement setting out the period during which the terms of the agreement were negotiated. Again, a paper trail of this is helpful;
  • The agreement and any advice was able to be understood by the weaker party. If an interpreter is needed, one should be used. There have been several cases where financial agreements have been set aside or found not to be binding because of a language barrier between a party and their legal practitioner;
  • The terms of the agreement were negotiated between lawyers rather than through the parties leaving less opportunity for pressure by one party on the other;
  • It is not a bad bargain or not so bad that it seems completely outrageous. As in Thorne v Kennedy the question was asked by the trial judge why would she have signed such a bad agreement unless there was pressure?

Disclosure, or lack of disclosure

The Trap – Complexities arise with pre-nuptial agreements and other agreements entered into before or early in a relationship because one party may be reluctant to fully disclose their wealth and the other party may have little direct personal knowledge of the other’s wealth. 

The disclosure obligations in the Rules of the Federal Circuit and Family Court of Australia do not cover financial agreements. 

However, if a party does not disclose their financial circumstances, the agreement is at risk of being set aside under s 90K(1)(a):

“A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:

  1. the agreement was obtained by fraud (including non-disclosure of a material matter) …”

The section which applies to de facto couples is s 90UM(1)(a). 

Other possible grounds include misrepresentation and mistake under s 90K(1)(b) or 90UM(1)(e) which allow the court to consider all the equitable contractual principles which could result in an agreement being found to be void, voidable or unenforceable.

There are pros and cons for detailed disclosure being provided by parties entering into an agreement. When parties have purported to provide full details of their financial positions, then if there are any errors it may be easier for the other party to successfully apply to set the agreement aside on the ground of a material non-disclosure. However, if the parties do not provide full details of their financial positions in the agreement, it may be more difficult to defend an application for the agreement to be set aside for non-disclosure of a material matter.

The problem of disclosure may also arise in relation to the advice requirement under s 90G(1) and 90 UJ(1). In Abrum & Abrum [2013] FamCA 897, Aldridge J was not satisfied that the wife had received the requisite legal advice because the legal practitioner did not ask for, or make or see a list of the parties’ assets and liabilities. There were numerous other issues about the advice given to the wife, but the failure to take instructions as to the parties’ financial positions led to a concern by the judge that if the advice was given by a legal practitioner where there was inadequate disclosure, the advice might not be “real and meaningful”. Although some cases after Abrum did not follow it, more recent cases have adopted this phrase of the necessity for “real and meaningful” legal advice.


  1. If your client does not want to provide disclosure or does not want to or require disclosure from the other party, give firm advice against this approach.
  2. If you act for the weaker party then the best way to protect yourself where there is scant disclosure but the client insists on signing the agreement, is to not act, particularly if you don’t know enough to give advice about that party’s entitlements under the FLA if there was no agreement. 
  3. Don’t include a provision which confirms that the parties have provided full disclosure to each other if they have not. A willingness to declare something to be true which is not, may also raise doubts about the state of mind of at least one of the parties. The problem of false recitals was raised in the only financial agreement case decided by the High Court, Thorne v Kennedy.
  4. When parties are at the beginning of a relationship be wary of taking one of the following approaches:
  • The parties provide no formal disclosure, but include a recital in the agreement that they waive or give up any right to proper disclosure.
  • The parties include a recital in the agreement that they have full or sufficient knowledge of the other party’s affairs to enter into the agreement without formal disclosure.

You might be able to more easily take one of these approaches when parties are at the end of a relationship, although it would not be my preference.

    1. Some disclosure is better than none at all, provided it is not misleading. For example, or “Matilda has substantial property held in real estate, shares and her interests in corporate entities and trusts which if valued would be over $100 million”.
    2. Whatever approach is taken, it should be clear from the recitals if or how the parties have provided disclosure.

Quarantining assets

The Traps 

If one party has significant wealth and seeks to quarantine all of it, the agreement may be at significant risk of being attacked.

The attack may not be successful, but will increase legal costs and uncertainty.

An attack may be successful because:

  • the agreement may be unfair – a bad bargain – leading the court to look for vitiating factors
  • the weaker party has incentive to establish that the agreement is binding or should be set aside
  • the court may be more inclined to find that the agreement is binding or should be set aside because it is a bad bargain
  • the parties have had a child together and the hardship ground can be established
  • it is set aside on other grounds or found not to be binding

Whether a party is seeking to protect the whole value of an item of property or part of it, definitions are important. The agreement needs to be clear as to the property which is being protected. Uncertainty of terms and meanings are grounds for an agreement to be set aside.


Options to consider. I will summarise these first and then discuss them.

  1. Ensuring the financially weaker party will have a home of reasonable value, preferably close to the financially stronger party so that parenting arrangements are easier if children are envisaged.
  2. Cascading entitlements over a period of years and/or after the birth of a child
  3. Including provisions for the agreement to terminate after a certain period and/or after the birth of a child. Sometimes called a “sunset” clause.
  4. Not ousting the ability to apply for spousal maintenance. The agreement only covers property entitlements;
  5. Provide for non-quarantined property to be dealt with under the FLA so the agreement doesn’t cover how all property will be dealt with at the end of a relationship.

Ensuring the weaker party is left with a home and is not out on the street is something I usually recommend. Rather than a particular property, it might be purchased after the parties separate at a price up to the median of a particular suburb.

A formula which gives cascading entitlements with the effluxion of time, the number of children or some other factor, is more complex to draft and implement than one which gives a fixed outcome. The agreement can, by stages or steps, reduce the amount of protection given to initial contributions and increase the entitlements of the party who made lesser initial contributions. 

The reason for including a cascading or stepped formula is to more closely match the increased property entitlements of a party under s 79 (or s 90SM) in longer relationships or relationships with a child where there will almost certainly have been greater contributions of the financially weaker party to at least partially offset the greater initial financial contributions of the financially stronger party, in comparison to a shorter relationship. The future needs factors in s 75(2) or s 90SF(3) may also be more important. 

The main difficulty with staged entitlements is that these agreements are complex, and therefore costly, to negotiate, draft, interpret and implement. It is also difficult to get the staged entitlements “right”. Either party may decide later that they were unfair and litigate to have the agreement set aside or found to be not binding. For example, in Matech & Matech [2020] FamCA 163 the agreement provided for the wife to receive $100,000 for each year of marriage. After 12 years of marriage she was entitled to $1.2 million. The husband believed that was too much and sought to have the agreement set aside for impracticability and uncertainty and for it to be declared as non-binding. He was unsuccessful.

Instead of completely quarantining initial contributions, it may be preferable to quarantine them for a short period only or until the birth of a child. At that time, the agreement will terminate. This is also known as a “sunset clause”. For a sunset clause to be effective the financial agreement must also include a termination agreement under s 90J or s 90UL and meet the requirements (including for advice) for termination agreements as well as the advice requirements for a financial agreement under s 90G(1) or s 90UJ(1).  

If the termination agreement requirements are not met, a requirement that the parties simply review an agreement if they have a child is unenforceable. Such a clause can only be used to encourage parties to re-negotiate an agreement, not force them to do so.

Another option is to leave open the ability of the parties to apply for spousal maintenance if they are eligible to apply under the FLA. By not ousting the jurisdiction of the court to make periodic or lump sum spousal maintenance orders, the court is left with the ability to address the disparate circumstances of parties after separation and take account of their different needs by making periodic spousal maintenance orders, lump sum spousal maintenance orders or both. The weaker party may be able to obtain an order for lump sum maintenance based on needs, which is likely to be less than a property adjustment made by the court which will also take into account contribution-based entitlements.

Options for quarantining include:

  1. The dollar value of the item of property at the date of the agreement. This means the dollar value of that property is still protected even if it is converted to another item of property or mixed with other property because the dollar value is traced. However, over a period of time the real value of the protected property will diminish. That might be a good outcome as it may mean the agreement is less likely to be attacked.
  2. The item of property itself, such as a farm or a home, on the assumption that it will not be sold or transferred. If the item of property is sold or transferred then the protection is lost. The protection of a business may be lost – depending upon the wording – by a change in circumstances, change in a corporate or trust structure, a change of name or a change in strategic direction. Another problem is that any contributions by the other party to that item of property, direct or indirect, are ignored. This may result in a particularly unfair outcome to the other party if there is little other property or if significant contributions have been made by the other party to that item of property. This is particularly problematic where the agreement states that there will not be such contributions.
  3. The item of property itself, but if it is sold or transferred the property’s value is traced into other property as a percentage of the purchase price of the replacement property. This may cause problems of uncertainty of terms and calculation if improvements are made to the property during the relationship, the value fluctuates or the net value differs greatly from the gross value.
  4. A broader wording, such as under the “changes in entities” section — I discussed earlier.

Uncertainties and inconsistencies in interpreting the terms of the agreement can mean the agreement is at risk of being set aside for uncertainty under s 90K(1)(b) or s 90UM(1)(e). Care must be taken as to how the quarantined property provisions fit in with the rest of the agreement. The parties may not abide by the terms of an agreement and may combine their quarantined property or mix it with non-quarantined property, despite a clause stating that they will not do so. These actions might result in the agreement being impracticable to perform under s 90K(1)(c) or s 90UM(1)(f), uncertain under s 90K(1)(b) or s 90UM(1)(e) or the court may exercise its discretion not to enforce it as the parties have abandoned it. For example, what if a party used an inheritance which was otherwise quarantined for the benefit of that party to significantly increase the value of the other party’s quarantined farm or home?

A recent example of the difficulty of drafting a workable quarantine clause arose in Daily & Daily [2020] FamCAFC 304; (2020) FLC 93-999. The essence of the agreement was that each party was to retain each party’s separately identified assets and liabilities. Recital K provided:

“Entitlements to assets and gifts or inheritances under this Deed extends to any appreciation in value attributable thereto and whether or not the asset has been sold or dealt with such that it has changed character provided the asset held at separation is clearly traceable to the original asset, gift or inheritance.”

The Full Court of the Family Court raised the possibility of very real difficulties with the interpretation of Recital K. For example, there appeared to be significant scope for debate about whether, and to what extent, an asset held at separation “is clearly traceable” within the intended meaning of that clause. 


The Trap – Financial agreements are enforceable after the death of a party to the agreement. Under ss 90H and 90UK, financial agreements operate despite the death of a party to the agreement and are binding on the legal representative of the deceased in relation to all obligations. 

Section 90H FLA states:

“A financial agreement that is binding on the parties to the agreement continues to operate despite the death of a party to the agreement and operates in favour of and is binding on, the legal personal representative of that party”.

Section 90UK is worded similarly for Pt VIIIAB financial agreements.

If the agreement or part of it is to cease upon the death of one or both of the parties then this must be specifically stated.

But financial agreements are not Wills. The law of Wills and probate is dealt with by the states and territories. Financial agreements are made under the FLA which is Federal legislation.

The precise effect of ss 90H and 90UK is unclear. The intention may be that all provisions in a financial agreement are binding even if one party dies after separation but before the agreement is implemented. 

Some lawyers believe that a financial agreement can be used as an estate planning device and over-ride the terms of a Will or operate instead of it. However, if there is a conflict between a financial agreement and state-based legislation with respect to the making of Wills, distribution of deceased estates, probate and testator’s family maintenance, then the state based legislation will apply as the Federal Parliament does not have the power to legislate with respect to Wills and estates under s 51 of the Constitution. 

However, the terms of the agreement and its effects are likely to be considered to be relevant to the intentions of the parties in any state-based litigation regarding a deceased estate. There is case law to support this. The agreement cannot, however, oust the jurisdiction of the state court. 


  1. Ensure the parties have Wills.
  2. As the estate of a payer or payee can enforce the provisions of an agreement for an ongoing order for maintenance which is not expressed in the agreement to end upon the death of the payer or the payee, ensure the obligation does end on the death of one of the parties. A court application may be able to be made to terminate the obligation of a party but there is no guarantee that the application will be successful.

Financial agreements are useful if the parties intend a maintenance provision to be binding despite the death of the payer, although this is likely to be rare and may assist a surviving payee to establish an entitlement to financial support from the payer’s estate after death. By contrast, court orders for maintenance will, pursuant to ss 82 or 90SJ, cease upon the death of the payer or payee.

  1. Include a clause by which the parties agree not to make family provision claims against each other’s estates. The extent to which such clauses can be enforceable as part of a financial agreement is unclear, particularly with respect to agreements between de facto couples. New South Wales is the only state or territory where it is possible to contract out of the right to make a family provision claim. These provisions can be approved by the Supreme Court of New South Wales. 

Checklist of clauses for drafting an agreement

Recitals – give sufficient background so that the agreement can be understood

  1. Definitions – Define terms, particularly terms such as “excluded property” or “separate property” and “joint property”. Use FLA terms where possible.
  2. Details of the parties: 
    1. Occupations; and
    2. Incomes
  3. The parties’ current and/or future relationship including dates
  4. The type of agreement, e.g. s 90B
  5. The length of time the parties have been considering the terms of the agreement, discussing and negotiating. 
  6. What property is excluded or considered to be “separate property”?
  7. What contingencies have the parties considered, such as birth of a child, ill-health, deterioration of financial circumstances?
  8. The nature of the disclosure between the parties 
  9. What is the agreement intended to do? For example, deal with all property and financial resources, oust maintenance rights only.
  10. Justifications for the outcome to be delivered by the agreement such as: 
    1. Initial contributions;
    2. Inheritances received or likely to be received
  11. Justification for clauses used if there is external evidence such as market appraisals, bank valuations, expert valuations 

Operative Parts 

  1. Oust the jurisdiction of the court with respect to one of:
    1. All property and financial resources of the parties 
    2. Property and financial resources dealt with in the agreement
    3. Rights of the parties to spousal maintenance
    4. Combination of the above.
  2. Binding on executors and administrators. 
  3. How the agreement interacts with wills and deceased estates.
  4. Compliance with s 90G(1), or the equivalent provision for de facto couples s 90UJ(1).
  5. How the breakdown of the relationship is defined.
  6. How property interests are determined upon the breakdown of the relationship. 
  7. Are there any circumstances where the financially weaker party will receive some of the otherwise quarantined property?
  8. How will other (joint and separate) property be dealt with?
    1. Who retains the former matrimonial home or will it be sold?
    2. What if there is no home at the time?
    3. When will the other party vacate the home?
    4. How will property be valued?
    5. The arrangements for any sale.
    6. How will the net proceeds of sale be distributed?
    7. How will liabilities be dealt with (including tax)?
    8. Do the parties want ss 75(2)/s 90SF(3) to apply to property not dealt with by the agreement? Not sure if this will be workable.
  9. Will superannuation be split?
    1. If so, how?
    2. How will procedural fairness be given?
    3. Who will retain any self-managed superannuation fund?
    4. What clauses are required to give effect to this?
    5. Consider a formula or method of calculation and require that the parties get court orders to implement the split.
    6. Include a clause along the lines that the operative time for a payment split is the beginning of the 4th business day after the day on which a copy of the agreement is served on the trustee accompanied by the other documents specified in s 90XI(1).
  10. Spousal maintenance
    1. Is the right to spousal maintenance partially or completely ousted?
    2. Will one party receive maintenance for a fixed period?
    3. How will the requirements of s 90E/ s 90UH be met? — Need to specify an “amount” for the spousal maintenance obligation.
    4. Can the requirements of s 90F/s 90UI be met? The ousting of spousal maintenance rights will be ineffective if the party cannot support themselves without an income tested benefit (Centrelink) when the agreement comes into effect.
  11. Any review of the agreement in certain circumstances (with a Termination Agreement) 
  12.  Indemnities

Boilerplate Provisions  – Remember that these may not be the same in each agreement

  1. Commencement of deed 
  2. No other financial agreements 
  3. No collateral agreements – entire understanding
  4. Governing law and jurisdiction 
  5. Dispute resolution 
  6. Severability 
  7. Waiver
  8. Independent legal advice
  9. Reconciliation 


  1. Excluded or separate property of each party 
  2. Property of both parties


  1. Separation declaration —if parties are separated
  2. Statement of Independent Legal Advice  
  3. Acknowledgement by parties of receipt of legal advice but not of other party’s statement of Independent Legal Advice  

Drafting checklist

The following checklist is not intended to be comprehensive, but lists a few tips to make sure that that things don’t go wrong:

  1. Don’t act for clients who:
    1. will not give instructions to draft an agreement which constitutes a “fair agreement”
    2. will not give proper disclosure 
    3. Will not negotiate the terms of the agreement
  2. Check the basics:
    1. The names of the parties are correct.
    2. The section of the FLA under which the agreement is made is correct, e.g. s 90B, s 90UB or s 90C.
    3. The agreement complies with s 90G(1) or 90UJ(1)
    4. The relationship status of the parties has not changed since you starting drafting the agreement or negotiating and advising on the terms.
  3. Check your client’s instructions by:
  • Obtaining ASIC searches of both parties and of any entities;
  • Obtaining title searches (including index searches) of real estate of both parties;
  • Sighting documents which a client may mis-interpret such as a superannuation member’s statement
  • Having the client’s accountant check that the financial position of the client is accurately described in the schedule to the financial agreement.
  1. Have detailed and contemporaneous file notes of conferences, including the times the conferences started and ended and who was present.
  2. Draft the letter of advice at an early stage, when drafting or reviewing the agreement, even though it may need to be updated. You may pick up drafting errors and inconsistencies as you write the letter.
  3. Give the client a letter of advice about the final version of the agreement a few days before the agreement is signed. 
  4. Update the verbal and written advice if amendments are made to the agreement, making sure that the advice is given in relation to the final version of the agreement as a whole, not just the amendments.
  5. Don’t include general statements in the agreement which are not true – e.g. mutual disclosure has occurred, a party is able to support themselves without Centrelink.
  6. If there are spousal maintenance provisions, ensure you have complied with s 90E or 90UH and s 90F or 90UI.
  7. Check for uncertainties, inconsistencies and incompleteness in drafting. Where possible, use terms which are in the FLA.  Make sure that other terms are carefully defined.
  8. Have another senior lawyer read the agreement.
  9. If your client wants the agreement to deal with all the property and potential property does it do this? Any gaps may mean that an application can be made under s 79 or s 90SM to deal with the omitted property and/or the agreement or part of it is void for uncertainty or incompleteness.  Does s 75(2)/90SF(3) apply to any omitted property?
  10. Are there potential claims in overseas jurisdictions now or later? The parties may need an agreement in another jurisdiction as well or a combined agreement covering both jurisdictions.
  11. If the parties may have children, provide for this possibility and state that the parties have considered the possibility. If not, the agreement is more likely to be able to be set aside under s 90K(1)(d) or s 90UM(1)(g).
  12. Before your client executes the agreement ensure it is complete with any annexures are attached, and that you have given the requisite legal advice on the whole agreement.
  13. Advise the client to abide by the terms of the agreement, and review the agreement if circumstances change. If the agreement is at the end of the relationship, ensure it is implemented.


Drafting financial agreements which are truly binding is not an easy task. The longer and more complex the agreement, the more that can go wrong. It is important to check the legislation carefully and use terms which are clear and defined, preferably terms which are used in the FLA or other legislation and case law. 

Thorne v Kennedy has not changed the fact that agreements which follow the wording of the FLA, and give the weaker party enough so it is not a “bad bargain”, are more likely to be binding and not set aside. One party will always be disadvantaged by the agreement, but Thorne v Kennedy alerted lawyers to the fact that a bad bargain may be an indication of a vitiating factor. A lengthy letter of advice confirming the verbal advice and the things that can go wrong is essential.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law & Practice

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