Pre-Nuptial Financial Agreements & Spousal Maintenance clauses are frequently the subject of litigation post separation.
It is common that parties will include a provision in relation to spousal maintenance in a binding financial agreement which states that neither party will make a spousal maintenance claim against the other in the event of separation.
A Binding Financial Agreement prepared prior to separation (often referred to as a ‘pre-nup’), when prepared properly, is an effective way for the other party to prevent you from making a spousal maintenance claim against them, should you separate.
There are stringent requirements in order for a spousal maintenance clause in a financial agreement to be binding and effective including that it must specify who is to receive the maintenance and how much the maintenance is.
For more information in relation to the basic requirements for an effective spousal maintenance protection clause, check out our article: Does your financial agreement protect you from a maintenance claim?
However, even if the basic elements of a spousal maintenance protection clause are met, the relevant clause in a financial agreement may still be void if at the time the agreement came into effect, the party making the claim was unable to support him or herself without an income tested pension or benefit.
The Law in relation to Financial Agreements & Spousal Maintenance where a party is in receipt of Centrelink
Under s90F (s90UI for de facto couples), even if the basic requirements are met in the financial agreement as it relates to spousal maintenance, those provisions are void (not binding) “if the Court is satisfied that at the time the agreement came into effect, and taking into account the terms and effect of the agreement, one party was unable to support themselves without an income tested pension, allowance or benefit.”
In other words, the Court still has the power to make a spousal maintenance order in favour of a party if at the time the agreement comes into effect, and taking into account the terms and effect of the agreement, a party to the agreement is unable to support themselves without an income tested pension, allowance of benefit (such as centrelink).
Notably, the term ‘at the time the agreement came into effect’ is not the time the parties enter into the financial agreement, but the time they separate.
Generally, a financial agreement is prepared in order to deal with spousal maintenance in the event separation, which may be many years after the financial agreement is prepared. This creates difficulties as neither party can predict the future, and whether a party may at the time of separation be unable to support themselves at the time without an income tested pension, allowance or benefit.
Consequently, it is impossible to guarantee the enforceability of a financial agreement prepared during the relationship, as it relates to spousal maintenance.
If at separation, a party is unable to support themselves without an income tested pension, allowance or benefit, the spousal maintenance provisions of the agreement will be void and the court will hear the application for spousal maintenance pending evidence being provided to the Court to support that this is the case. This is precisely what happened in the case of Ellerton & Jennings.
Ellerton & Jennings – the Facts
In 2006, the parties entered into a Binding Financial Agreement.
The parties separated on 11/12 May 2018, and agree that the financial agreement became operative at that time.
In February 2021 the Husband applied to the Court seeking orders that the spousal maintenance provisions in the agreement be set aside and further orders for periodic or lump sum spousal maintenance from the Wife.
The financial agreement provided the following terms with respect to spousal maintenance:
19. The parties acknowledge that they are currently self-sufficient and capable of supporting themselves, and that no provision of spousal maintenance is necessary or desired.
20. Both parties fully and freely waive any and all rights or claims they may now or in the future have to spousal maintenance under the Family Law Act 1975 and under any or all statutes now or later enacted in this or any other state or country having jurisdiction over the parties.
21. The parties agree and covenant that in the event of the breakdown of marriage and a claim being made for settlement of property, variation of property interests or spousal maintenance by either or both of them, the terms of this Agreement will determine the issues between them.
The Wife sought enforcement of the provisions of the financial agreement with respect to spousal maintenance and dismissal of the Husband’s application.
Ellerton & Jennings – the decision & the appeal
The Trial Judge held that the spousal maintenance clause (Clause 19) was not void and that the clause complied with section 90E. The Trial judge held that whilst clause 20 of the agreement did not meet the requirements of s90E as it did not identify what quantum of future spousal maintenance the parties were foregoing, clause 19 did meet the requirements of s90E as it made clear that there was to be ‘no provision of spousal maintenance’ and that no provision should be interpreted to mean nil/zero/none.
Nevertheless, the Husband’s application was successful and the spousal maintenance clause was void on other grounds, namely, that at the time the agreement came into effect, he was unable to support himself without an income tested pension, allowance or benefit (section 90F). The result exposed the Wife to a risk of a spousal maintenance order being made by the Husband.
Both parties appealed for differing reasons.
Relevantly, the Wife appealed on the basis that the Husband had not demonstrated that he was unable to support himself without an income tested pension, allowance or benefit and as a result, the spousal maintenance clause should not have been determined to be void.
On appeal, the Court noted that the parties had relied solely on their affidavit material and written submissions, without any oral evidence by way of cross-examination.
The appeal court in making its decision, looked at the evidence which was before the trial judge and the findings made including the Husband’s affidavit evidence (which had not been objected to by the wife in the initial hearing) and agreed with the Trial Judge’s findings that the Husband had, through unopposed and untested affidavit evidence, satisfied that he was unable to support himself without an income tested pension, allowance or benefit.
The Wife’s appeal failed on these grounds, and accordingly, she was exposed to a risk of a spousal maintenance claim.
For more information on the Husband’s appeal grounds, check out our article: Does your financial agreement protect you from a maintenance claim?
Salvage & Fosse – the facts
In Salvage & Fosse, the parties lived in a de facto relationship for 4 years, separated for 2 years and then resumed living together in a relationship for another 10 years until separation in September 2016.
During the second period of the relationship, in March 2008, the parties entered into a Cohabitation Agreement under the Property Law Act 1974 (Qld).
The (de facto) Wife commenced proceedings in 2018 seeking that the Cohabitation Agreement be set aside for unconscionability and undue influence and she indicated further that the spousal maintenance clause was void and she was not prohibited from making an application for spousal maintenance as when the agreement came into effect, the circumstances were such that she could not support herself without an income tested pension, allowance or benefit (s90UI).
At the time of the trial the uncontroversial facts were that the Wife was 71, she had retired from employment at age 65, she had net assets of $6,800, she had commenced receiving the centrelink pension when she was 64/65, in 2015 the Husband commenced paying her $1,000 per month to assist in supporting her.
Salvage & Fosse – the decision & the appeal
The Trial Judge determined that the spousal maintenance protection clause in the Cohabitation Agreement ought be set aside due to the fact that, at the time the Cohabitation Agreement came into effect (that is at separation or in the weeks thereafter), taking into account the terms and effect of the Cohabitation Agreement, the Wife was unable to support herself without an income tested pension, allowance or benefit.
The Husband appealed on various grounds. One of these grounds was the interpretation of the phrase “came into effect”, as the Husband was of the view that this phrase referred to when the Cohabitation Agreement was originally executed. While the Husband did not make submissions on this point, the Court made it clear that this interpretation is not correct. The correct interpretation is that the Cohabitation Agreement came into effect at the time of the breakdown of the relationship.
This is because the Family Law Act has the constitutional power over financial matters arising from the breakdown of a relationship. For this reason, without the breakdown of the relationship, the Cohabitation Agreement has not “come into effect”.
The Husband also appealed on the ground that the court erred in finding that at the time the agreement came into effect, at separation, the Wife was unable to support herself without an income tested pension, allowance or benefit.
The basis of this appeal point was that the Trial Judge did not give adequate consideration to the Wife’s capacity to obtain employment to support herself without an income tested pension.
The Husband relied upon evidence that in January 2015 she had obtained casual employment at some markets and in a hospitality business and for a short period had operated the business while the owner went overseas to get married. This was at a time when she was already on a reduced pension because of the relationship and the fact that the husband had commenced paying her $1,000 per month, with such payment ceasing at separation.
The Husband further argued that there were inaccuracies in the financial documents so as to indicate that the Wife may have greater financial resources available to her.
The appeal failed. The appeal Judges noted that the Trial Judge was entitled to place more weight on the uncontentious evidence rather than the untested evidence (i.e her age, net assets and deteriorating health). It was noted that she should not at her age be required to seek employment which she reasonably understands she is unlikely to obtain. The appeal judges held that it was open to the Trial Judge to conclude, based on the uncontentious evidence, that at the time the agreement came into effect, she was unable to support herself without the pension, allowance or benefit.
Beware defective spousal maintenance clauses in Financial Agreements
These cases act as a reminder that it is impossible to guarantee the enforceability of a financial agreement prepared during the relationship, as it relates to spousal maintenance.
People entering into a financial agreement before, or during a relationship or marriage will always be at risk of a spousal maintenance claim being made against them in the future, if upon the breakdown of the relationship (when the agreements comes into effect) a party is unable to support themselves without an income tested pension, allowance or benefit.
The best way to avoid a spousal maintenance claim is therefore to ensure that in the event of a breakdown of the relationship, each party receives sufficient property so as to make them ineligible for any income tested pension, allowance or benefit. However, given neither party can predict the future, and the clause may not come into effect for many years into the future, this may be an impossible task.
If you are contemplating entering into a financial agreement to protect yourself from a claim of spousal maintenance by your former partner, contact us on 3465 9332 to book a reduced rate consultation to have a confidential discussion about your individual circumstances.