House of Representatives

Explanatory Memorandum

Circulated By Authority of the Attorney-General, the Honourable Robert Mcclelland MP

SCHEDULE 3 - AMENDMENTS RELATING TO FINANCIAL AGREEMENTS ABOUT MARRIAGE

Part 1 - Clarifying that other persons can be parties

Family Law Act 1975

281. A binding financial agreement enables persons intending to marry and married couples to provide in writing for how property will be distributed between them on marriage breakdown, and can be made to give effect to a property settlement on separation or divorce.

282. The amendments in Part 1 of Schedule 3 clarify that:

-

binding financial agreements between spouses can include another person (a third party) as a party to the agreement, and

-

a binding financial agreement can make provision on other matters beyond those incidental or ancillary to property settlement or maintenance issues between the spouses.

283. Financial agreements can be made in contemplation of a marriage, during a marriage, or after a divorce order is made.

284. The amendments address issues that occasionally arise when the financial affairs of married couples are intermingled with other family members, including where family assets are held within a corporate or tax structure.

285. It is intended that a third party should only be able to be a party to a binding financial agreement to the extent that the agreement provides for:

-

how the property or financial resources of the spouses is to be dealt with in the event of marriage breakdown, or

-

the maintenance of one of them after that time.

Item 1 Subsection 4(1) (definition of spouse party )

286. This item inserts in subsection 4(1) a definition for 'spouse party', being a party to the marriage who is also a party to the financial agreement.

Item 2: Subsection 4(1) (definition of third party )

287. This item inserts in subsection 4(1) a definition for 'third party', being a party to the financial agreement who is not a spouse party.

Item 3: Paragraph 90B(1)(aa)

288. Section 90B deals with financial agreements made before marriage. Subsection 90B(1) sets out the requirements for such agreements, including that at the time of the making of the agreement, no other agreement is in force between the parties with respect to any of those matters, whether made before marriage under this section, during marriage under section 90C, or after a divorce order is made under section 90D.

289. This item clarifies that at the time of the making of an agreement under subsection 90B, there is to be no other agreement in force between the spouse parties with respect to any of those matters, whether made before marriage under this section, during marriage under section 90C, or after a divorce order is made under section 90D.

Item 4: At the end of Subsection 90B(1)

290. This item clarifies that financial agreements made before marriage can include persons other than a spouse party (a third party) as a party to the agreement.

Item 5: Subsection 90B(2)

291. Subsection 90B(2) provides that the matters that may be included in financial agreements made before marriage are matters relating to:

-

how all or any of the property or financial resources of the parties is to be dealt with in the event of the breakdown of the marriage, and

-

spouse maintenance for either of them during the marriage, or after divorce, or both during the marriage and after divorce.

292. This item amends subsection 90B(2) to clarify that the property or financial resources dealt with in the financial agreement is to be the property or financial resources of the spouse parties.

Item 6 : Subsections 90B(3) and (4 ):

293. Subsection 90B(3) provides that a financial agreement made before marriage under subsection 90B(1) may contain matters incidental or ancillary to:

-

how all or any of the property or financial resources of the parties is to be dealt with in the event of the breakdown of the marriage, and

-

spouse maintenance for either of them during the marriage, or after divorce, or both during the marriage and after divorce.

294. This item extends the operation of subsection 90B(3) so that a financial agreement made under subsection 90B(1) is able to contain matters other than those incidental or ancillary to those mentioned in subsection 90B(2).

295. Subsection 90B(4) provides that a later financial agreement may terminate a previous financial agreement made under subsection 90B(1) between the same parties. This item also clarifies that under subsection 90B(4), a later financial agreement may terminate a previous financial agreement made under subsection 90B(1) only if all the parties to the previous agreement, including any party who is not a spouse party, are parties to the new agreement.

Item 7: Paragraph 90C(1)(aa)

296. Section 90C deals with financial agreements made during marriage. Subsection 90C(1) sets out the requirements for such agreements, including that at the time of the making of the agreement, no other agreement is in force between the parties with respect to any of those matters, whether made before marriage under section 90B, during marriage under this section, or after a divorce order is made under section 90D.

297. This item clarifies that at the time of the making of an agreement under subsection 90C, there is to be no other agreement in force between the spouse parties with respect to any of those matters, whether made before marriage under section 90B, during marriage under this section, or after a divorce order is made under section 90D.

Item 8: At the end of subsection 90C(1)

298. This item clarifies that a financial agreement made during marriage can include other persons (third parties) to the agreement.

Item 9: Subsection 90C(2)

299. Subsection 90C(2) provides that the matters that may be included in financial agreements made during marriage are matters relating to:

-

how all or any of the property or financial resources of the parties is to be dealt with in the event of the breakdown of the marriage, and

-

spouse maintenance for either of them during the marriage, or after divorce, or both during the marriage and after divorce.

300. This item amends subsection 90C(2) to clarify that the property or financial resources dealt with in the financial agreement is to be the property or financial resources of the spouse parties.

Item 10: Subsections 90C(3) and(4)

301. Subsection 90C(3) provides that a financial agreement made during marriage under subsection 90C(1) may contain matters incidental or ancillary to:

-

how all or any of the property or financial resources of the parties is to be dealt with in the event of the breakdown of the marriage, and

-

spouse maintenance for either of them during the marriage, or after divorce, or both during the marriage and after divorce.

302. This item extends the operation of subsection 90C(3) so that a financial agreement made under subsection 90C(1) is able to contain matters other than those incidental or ancillary to those mentioned in subsection 90C(2).

303. Subsection 90C(4) provides that a later financial agreement may terminate a previous financial agreement made under subsection 90C(1) between the same parties. This item also clarifies that under subsection 90C(4), a later financial agreement may terminate a previous financial agreement made under subsection 90C(1) only if all the parties to the previous agreement, including any party who is not a spouse party, are parties to the new agreement.

Item 11: Paragraph 90D(1)(aa)

304. Section 90D deals with financial agreements made after a divorce order is made. Subsection 90D(1) sets out the requirements for such agreements, including that at the time of the making of the agreement, no other agreement is in force between the parties with respect to any of those matters, whether made before marriage under section 90B, during marriage under section 90C, or after a divorce order is made under this section.

305. This item clarifies that at the time of the making of an agreement under subsection 90D, there is to be no other agreement in force between the spouse parties with respect to any of those matters, whether made before marriage under section 90B, during marriage under section 90C, or after a divorce order is made under this section.

Item 12: Subsection 90D(1)

306. This item clarifies that a financial agreement made after a divorce order can include other persons (third parties) to the agreement.

Item 13: Subsection 90D(2)

307. This item inserts the term 'spouse parties', which is defined as a party to the marriage who is also a party to the financial agreement.

308. Subsection 90D(2) provides that the matters that may be included in financial agreements made after divorce are matters relating to:

-

how all or any of the property or financial resources of the parties is to be dealt with, and

-

spouse maintenance for either of them.

309. This item amends subsection 90D(2) to clarify that the property or financial resources dealt with in the financial agreement is to be the property or financial resources of the spouse parties.

Item 14: Subsections 90D(3) and (4)

310. Subsection 90D(3) provides that a financial agreement made after divorce under subsection 90D(1) may contain matters incidental or ancillary to:

-

how all or any of the property or financial resources of the parties is to be dealt with, and

-

spouse maintenance for either of them.

311. This item extends the operation of subsection 90D(3) so that a financial agreement made under subsection 90D(1) is able to contain matters other than those incidental or ancillary to those mentioned in subsection 90D(2).

312. Subsection 90D(4) provides that a later financial agreement may terminate a previous financial agreement made under subsection 90D(1) between the same parties. This item also clarifies that under subsection 90D(4), a later financial agreement may terminate a previous financial agreement made under subsection 90D(1) only if all the parties to the previous agreement, including any party who is not a spouse party, are parties to the new agreement.

Item 15: Subsections 90DA(3) and (4)

313. Subsection 90DA(1) provides that a financial agreement between two people is of no force or effect until a separation declaration is made. Subsection 90DA(2) states that a separation declaration is a written declaration that complies with subsections 90DA(3) and 90DA(4).

314. Subsection 90DA(3) requires a separation declaration to be signed by at least one of the parties to the financial agreement.

315. This item amends subsection 90DA(3) to clarify that the declaration must be signed by one or both of the spouse parties.

316. Subsection 90DA(4) requires a separation declaration to state that the parties have separated and are living separately and apart at the declaration time and, in the opinion of the parties making the declaration, there is no reasonable likelihood of cohabitation being resumed.

317. This item amends subsection 90DA(4) to clarify that the requirement relates to spouse parties.

Item 16: Subsection 90DA(5) (definition of declaration time )

318. Subsection 90DA(5) defines the term 'declaration time' for the purpose of section 90DA to mean the time when the declaration was signed by a party to the financial agreement (or last signed by a party to the agreement, if both parties to the agreement have signed).

319. This item clarifies that the spouse parties must sign the declaration.

Item 17: After section 90DA

320. This item inserts new section 90DB to provide that a binding financial agreement, to the extent to which it provides for a party to the agreement who is not a spouse party to contribute to the maintenance of a spouse party during the marriage to which the agreement relates, is of no force of effect. Any such agreement for a person to contribute to the maintenance of a spouse party during marriage must be contained in a separate agreement enforceable in a court of general jurisdiction.

321. New section 90DB also provides that a binding financial agreement, to extent to which it provides for a matter beyond those incidental or ancillary to how the property or financial resources of the spouse parties are dealt with on marriage breakdown or the maintenance of the spouse parties, is of no force or effect unless or until the marriage between the spouse parties breaks down.

Item 18: Section 90E

322. Section 90E provides that provisions of a financial agreement that relate to the maintenance of a party to the agreement or a child or children are void unless they specify certain matters to identify the amount, or the value of the portion of property, attributable to maintenance.

323. This item clarifies that section 90E applies to provisions of a financial agreement that relate to a spouse party to the agreement.

Item 19: Subsection 90F(2)

324. Subsection 90F(2) clarifies that a financial agreement providing for property or financial resources of a party to the agreement to continue in the ownership of that party is a financial agreement for the purposes of Part VIIIA of the Act.

325. This item clarifies that subsection 90F(2) applies where the financial agreement contains a provision of that kind in relation to property or financial resources of a spouse party to the agreement.

Item 20: Paragraph 90G(1)(a)

326. Section 90G provides for the requirements that need to be satisfied before a financial agreement is binding on the parties to the agreement.

327. This item, by omitting 'both' and substituting 'all' in paragraph 90G(1)(a), clarifies that an agreement must be signed or lawfully executed by all the parties to the agreement.

Item 21: Paragraph 90G(1)(b)

328. Section 90G provides for the requirements that need to be satisfied before a financial agreement is binding on the parties to the agreement.

329. This item, by omitting "'party' (first occurring)" in paragraph 90G(1)(b) and substituting 'spouse party', clarifies that the requirement to obtain legal advice prior to signing a binding financial agreement applies only to spouse parties to the agreement. A third party is treated differently from a spouse party to the agreement because the requirement to obtain prior legal advice is not necessary for any third party who, through signing a binding financial agreement, does not lose any existing rights under the Family Law Act 1975 .

Item 22: Paragraph 90G(1)(e)

330. Section 90G provides for the requirements that need to be satisfied before a financial agreement is binding on the parties to the agreement.

331. This item recasts paragraph 90G(1)(e) to require that the original of the financial agreement must be given to one of the spouse parties and a copy given to each of the other parties to the agreement.

Item 23: Paragraph 90J(2)(a)

332. Section 90J deals with the termination of financial agreements, reflecting a policy that it is desirable, where the parties deal with all their property and financial resources in a binding financial agreement, for courts under the Family Law Act 1975 to consider one agreement. Where new arrangements are subsequently negotiated, parties are required to terminate all prior binding financial agreements, alleviating the need for courts to go through a succession of documents to determine whether Part VIII applies to the property or financial resources of parties to a marriage (see section 71A). An agreement terminating a binding financial agreement is a termination agreement. Subsection 90J(2) provides for the requirements that need to be satisfied before a termination agreement is binding on the parties to the agreement.

333. This item amends paragraph 90J(2)(a) so that the provision requires a termination agreement to be signed or lawfully executed by all of the parties to the agreement.

Item 24: Paragraph 90J(2)(b)

334. This item, by omitting "'party' (first occurring)" in paragraph 90J(2)(b) and substituting 'spouse party', clarifies that the requirement to obtain legal advice prior to signing a termination agreement applies only to spouse parties to the agreement.

Item 25: Paragraph 90J(2)(e)

335. This item recasts paragraph 90J(2)(e) to require that the original of the termination agreement must be given to one of the spouse parties and a copy given to each of the other parties to the agreement.

Item 26: Paragraph 90K(1)(aa)

336. Section 90K provides for the grounds on which a court may set aside a binding financial agreement or a termination agreement. One such ground is where either party to the agreement entered into the agreement for the purpose of defrauding or defeating a creditor of the party.

337. This item amends paragraph 90K(1)(aa), so that the ground is available where the agreement was entered into for the purpose of defrauding or defeating a creditor of any party to the agreement.

Item 27: Subsection 90MH(1)

338. Subsection 90MH(1) provides that a financial agreement may include an agreement that deals with the superannuation interests of either or both of the parties to the agreement.

339. This item limits subsection 90MH(1) to superannuation interests of either or both of the spouse parties to the agreement.

Item 28: Subsection 90MH(4)

340. Subsection 90MH(4) provides that a superannuation agreement included in a financial agreement made before marriage by persons contemplating marriage has no effect until the parties marry.

341. This item clarifies that subsection 90MH(4) applies to spouse parties to the financial agreement.

Item 29: Subsection 90MH(5)

342. Subsection 90MH(5) provides that for the purpose of applying particular provisions in Part VIIIA of the Act to Part VIIIB of the Act, a superannuation interest of a party to a financial agreement is treated as having been acquired at the time when the party first became a member of the relevant eligible superannuation plan.

343. This item clarifies that subsection 90MH(5) applies to a superannuation interest held by a spouse party to a financial agreement.

Part 2 - Separation declarations

Family Law Act 1975

344. The amendments to Part 2 of Schedule 3 make a number of amendments in relation to separation declarations under Part VIIIA and Part VIIIB of the Act where the parties to a financial agreement have divorced or the spouse to which the declaration was made has died.

Item 30 : Subsection 90DA(1 )

345. Section 90DA sets out the requirements for the making of a separation declaration under Part VIIIA of the Act before certain provisions of a financial agreement can take effect.

346. This item, in new subsection 90DA(1A), clarifies that a separation declaration is not necessary for the binding financial agreement to have force or effect if the spouse parties divorce, or either or both of them die. The item also recasts subsection 90DA(1) to reflect that a person other than a spouse party to a financial agreement can be a party to the agreement.

Item 31: Subsection 90DA(2)

347. This item amends subsection 90DA(2) to enable a separation declaration made under Part VIIIA of the Act to be incorporated into a financial agreement. A financial agreement may be made during the marriage to which it relates but after its breakdown.

Item 32: Section 90MD (at the end of the definition of declaration time )

348. The definition of 'declaration time' in section 90MD provides that the term means the time when the separation declaration was signed by a spouse (or last signed by a spouse, if both spouses have signed). This item adds a note beneath the definition of 'declaration time' to clarify that where a spouse has died, the separation declaration may be signed by the spouse's legal personal representative.

Items 33, 34 and 35: Section 90MI, paragraph 90MI(a), and at the end of section 90MI

349. These items amend paragraph 90MI(a) and insert new subsection 90MI(2), consequential on the amendment to subsection 90DA(2) enabling a separation declaration to be incorporated into a superannuation agreement.

Item 36: After paragraph 90MJ(1)(d)

350. Section 90MJ deals with payment splits under superannuation agreements or flag lifting agreements. A flag lifting agreement is defined in section 90MN of the Act as an agreement the spouses may make at any time when a payment flag is operating on a superannuation interest.

351. Consequential on the insertion of new subsection 90MZG(4), explained below in relation to item 41 of Schedule 3 to the Bill, it is necessary to remove the possibility that a superannuation agreement might be used to split superannuation where the spouse's marriage had not in fact broken down before the spouse died.

352. This item inserts new paragraph 90MJ(1)(da) to ensure that, where a superannuation agreement or a flag lifting agreement relates to a marriage, a split pursuant to subsection 90MJ(3) of a future payment in respect of a superannuation interest to which the agreement relates only operates if the marriage is broken down at the time the agreement commences to operate.

Item 37: Subsection 90MP(1)

353. This item amends subsection 90MP(1) to enable a separation declaration made under Part VIIIB of the Act to be incorporated into a superannuation agreement. A superannuation agreement may be included in a financial agreement made during the marriage to which it relates but after its breakdown.

Item 38: At the end of subsection 90MP(2)

354. This item amends subsection 90MP(2) to clarify that where a spouse has died, the separation declaration may be signed by the spouse's legal personal representative.

Item 39: After subsection 90MP(4)

355. This item inserts new subsection 90MP(4A) to amend the requirements for separation declarations to allow for a situation where one or both of the spouses has died.

356. Paragraph 90MP(4A)(a) requires that where section 90MQ applies to the separation declaration, the separation declaration must state that at the most recent time when both spouses were alive:

-

the spouses were married, but

-

the spouses were separated and had lived separately and apart for a continuous period of at least 12 months immediately before that time.

357. Paragraph 90MP(4A)(b) requires that where section 90MQ does not apply to the separation declaration, the separation declaration must state that at the most recent time when both spouses were alive, the spouses were married but separated.

Item 40: Subsection 90MQ(1)

358. Section 90MQ applies where the 'total withdrawal value' is more than the member spouse's 'low rate cap amount' (determined in accordance with the Income Tax Assessment Act 1997 ). For the 2007-2008 income year, that amount is $140,000. The term 'total withdrawal value' is defined in regulation 20 of the Family Law (Superannuation) Regulations 2001 to mean the amount determined by adding together the withdrawal benefits for each superannuation interest the member spouse has in any eligible superannuation plan at that time. This item amends subsection 90MQ(1) consequential on new subsection 90MP(4A) inserted by item 39 of Schedule 3 to the Bill.

Item 41: At the end of section 90MZG

359. Subsection 90MZG(1) provides that a person is guilty of an offence if he or she makes a false or misleading statement in a superannuation declaration. This item inserts new subsection 90MZG(4) having the effect that a person is not guilty of that offence if the spouse to which the declaration relates died before the declaration was made. Where that spouse has died, the declaration might be made by the deceased spouse's legal personal representative. In those circumstances, criminal sanctions for the making of a statement in the declaration are inappropriate given that the legal personal representative will have no first hand knowledge of the state of the spouse's marriage before he or she died.

Part 3 - Matrimonial causes

Family Law Act 1975

360. The amendments in Part 3 of Schedule 3 make provision in relation to the jurisdiction of courts exercising jurisdiction under the Act in relation to financial agreements.

Item 42: Subsection 4(1) (paragraph (eaa) of the definition of matrimonial cause )

361. This item makes an amendment to paragraph (eaa) of the definition of 'matrimonial cause' in subsection 4(1) of the Act, the effect of which is that courts can deal with matrimonial causes which are proceedings between any combination of the parties to the agreement and the legal personal representatives of a party to the agreement who has died. Under subsection 90H of the Act, a binding financial agreement continues despite the death of a party to the agreement, and operates in favour of, and is binding on, the legal personal representative of that deceased party.

Items 43 and 44: Paragraphs 4A(1)(a) and (b), and subsection 4A(2) (definition of creditor )

362. This item makes amendments to section 4A of the Act, which provides for the meaning of the term 'third party proceedings' for the purpose of paragraph (eab) of the definition of 'matrimonial cause' in subsection 4(1) of the Act. Paragraph (eab) of that definition provides that courts can deal with third party proceedings to set aside a financial agreement. Third party proceedings are defined to mean proceedings between particular persons or bodies to set aside a financial agreement on the ground set out in paragraph 90K(1)(aa) of the Act. Paragraph 90K(1)(aa), as amended by item 26 of Schedule 3 to the Bill, enables a financial agreement to be set aside where a party to the agreement entered into the agreement for the purpose of defrauding or defeating a creditor of the party. The particular persons or bodies between whom the third party proceedings must be taken are one or both of the parties to the agreement and a creditor or government agency acting in the interests of a creditor.

363. Item 43 extends the meaning of the term 'third party proceedings' so that it also includes proceedings between any combination of the parties to the agreement and the legal personal representatives of a party to the agreement who has died and, in addition to a creditor or a government body acting in the interests of a creditor, the legal personal representative of a creditor who has died.

364. Item 44 extends the meaning of the term 'creditor' for the purpose of the meaning of the term 'third party proceedings' so that it includes the legal personal representative of any person who has died.

Part 4 - Other amendments

Family Law Act 1975

Item 45: Subsection 90F(2)

365. This item amends existing subsection 90F(2) of the Family Law Act 1975 to ensure that it applies to all financial agreements that can be made under Part VIIIA, correcting a technical omission of reference in the existing provision to agreements made before marriage under subsection 90B(1).

366. The new provision that replicates section 90F for Part VIIIAB agreements, subsection 90UH(3), also applies to the equivalent of subsection 90B(1) financial agreements - agreements made before the de facto relationship, under subsection 90UB(1).

Item 46: Paragraph 90MU(1)(b)

367. This item amends paragraph 90MU(1)(b) to adjust the notification requirement relating to splittable payments that become payable in respect of a superannuation interest has been flagged by a court order to bring it into line with the requirement, under subsection 90ML(5), relating to those payments when a superannuation interest has been flagged by a superannuation agreement.

368. Currently, section 90MU requires the relevant superannuation fund trustee to notify the court which made the flagging order of the next occasion when a splittable payment becomes payable in respect of a superannuation interest it has flagged. Under subsection 90ML(5), the relevant fund trustee is required to notify the spouse parties in relation to splittable payments that become payable in respect of a superannuation interest which has been flagged by a superannuation agreement. Where a superannuation interest has been flagged by a court order, the court which made the order may no longer have current contact details for the spouse parties, which are more likely to be held by the fund.

369. Reflecting the requirement when a superannuation interest is flagged by a superannuation agreement, the amendment made by this item will, when the superannuation interest has been flagged by a court order, require the fund trustee to notify the spouse parties.

Items 47 and 48: Subsection 90MZB(8) (after paragraph (a) of the definition of eligible person ), subsection 90MZB(8) (after paragraph (b) of the definition of eligible person )

370. Section 90MZB provides for procedures permitting an 'eligible person' to make an application to a superannuation fund trustee for information about a superannuation interest in the fund. An 'eligible person' is defined, under subsection 90MZB(8) to mean, in relation to a superannuation interest of a member of a superannuation fund, the member, his or her former spouse, or a person intending to enter into a superannuation agreement with the member.

371. These items amend subsection 90MZB(8) to include, as an 'eligible person', the legal personal representative of a member, or the spouse of a member, who has died.

372. Most of the information required, under Division 7.2 of the Family Law (Superannuation) Regulations 2001 , to be provided by a fund trustee in response to an application, relates to the value of the superannuation interest. When property settlement negotiations have led to court proceedings, and one of the spouses then dies, the proceedings can be continued by or against the legal personal representative of the spouse who has died. While information about the value of the spouse's superannuation interest will have been earlier obtained, updating valuation information will generally be required if the proceedings go to trial.