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Do you need a Cohabitation Agreement?

By April 21, 2022February 23rd, 2024No Comments

Modern day relationships don’t always result in marriage and plenty of people simply live together, and there’s been an increase in people wishing to enter Cohabitation Agreements. Here, we look at some of the benefits and what to watch out for.

Australia’s Family Law Act 1975 allows parties in relationships, whether de facto or married, to enter into contractual agreements known as Binding Financial Agreements (BFAs). BFAs for couple who are planning to get married are colloquially known as “prenups”. BFAs for de facto couples are sometimes referred to as “no nups” but a more formal name is a Cohabitation Agreement. 

BFAs are legally binding agreements that set out how parties to a relationship wish to divide their assets in the event of a future separation. Although people have rights and entitlements under the Family Law Act relating to property, entering a BFA means that contract will determine the rights and entitlements instead. 

When can you enter a BFA?

You can draw up and sign a Cohabitation Agreement either before starting to live together, before you get married, during the de facto relationship or during the marriage. If you have separated, you can also do a BFA – we won’t look at post-separation BFAs in this blog. 

Why enter a BFA?

BFAs can clarify each party’s future entitlement to the couple’s assets and agree on rights and ownerships in the event of a future separation. The document legally establishes who really owns what and what a fair and equitable distribution of the couple’s assets should be, allowing each party to clearly understand provisions for the future should their relationship end. 

Separations can be quite traumatic in themselves – having the certainty of a well-drafted BFA can reduce the stress of a legal dispute over property at the end of their relationship. Having the clarity and certainty of a BFA also means that couples can avoid financial arguments and insecurities by making everything very clear.

What to include in a BFA

With a BFA you can protect assets that were introduced into a relationship, in effect quarantining them from the relationship. You can also protect a superannuation interest, a family business like a farm (where assets and finances are intermingled with extended family), and handle the issue of future inheritances. You can also protect a party from debts brought into the relationship by the other party.

The agreement will set out how property will be divided in the event of a separation. It can be as simple as stating that each party wishes to keep their financial affairs separate from the other and that neither party bears any responsibility for the debts of the other. The document can cover all assets or only some, and can include business assets or interests arising from family trusts.

It sets out what the process should be for asset division in the event of separation, including whether each party has the opportunity to buy the other party’s interest in jointly held property, if not, how joint assets should be sold and proceeds divided.

The agreement can also deal with spousal maintenance (which also applies to de facto couples).

The best BFAs provide security for the future by planning for the unexpected. This means anticipating likely future events to ensure the agreement’s relevance into the future, for example, birth of children, unexpected inheritances. 

Potential issues with BFAs

As with all BFAs, there are certain reasons why a BFA may be deemed legally invalid or set aside by a Court. There may be basic problems with the agreement such as mistakes in drafting or executing them, the inclusion of incomprehensible clauses, or the non-disclosure of a material fact.

Or there may be issues with the timing of when the agreement was entered into. Courts have set aside agreements if they were entered right before a wedding, as this may be an indication that duress or undue influence was applied. 

Another very important factor is that parties are required to have been provided with independent legal advice about the fairness and effect of the agreement.

Another aspect to consider is that the agreement should anticipate major life changes (such as the birth of a child or if there is a major change in financial circumstances), but bear in mind that if such life changes do occur, it’s wisest to re-evaluate the agreement and update it to account for the changes, to avoid issues later.

To avoid your BFA being set aside by the court later, you should ensure it has been planned and drafted properly, in clear concise terms.  You should have an open and honest discussion with partner to work out the exact terms. Wanting to look out for each other’s future and provide each other with stability is, after all, a measure of your love for each other.

Make sure you each see a lawyer independently for advice and to have your decisions put into legal terms. Once signed, your lawyer should keep a copy of your BFA in safe custody together with their related file notes and comprehensive letter of advice.

Rather than leave things up to the courts and the Family Law Act, documenting all the practical arrangements that need to be addressed when two people set up house and safeguarding finances and assets through a BFA can provide peace of mind for both parties and their families. It’s sensible to consider entering into a BFA, to make clear your wishes for the future.

For advice on a Cohabitation Agreement or any other form of Binding Financial Agreement, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.

Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.

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