Financial agreements and infidelity – can I get more if they cheat?

Introduction

Financial agreements, also known as binding financial agreements, pre-nuptial agreements or pre-nups, allow couples to decide how their assets will be divided if they separate. It is increasingly common for couples to ask for a clause in their agreement that punishes a cheating party by reducing their financial entitlement. While it is possible to include an infidelity clause in a financial agreement, it may be difficult or impossible to enforce. Further, having a substantive clause that cannot be enforced may impact the validity of the entire agreement. Serious consideration needs to be given before including such clauses in your agreement.

What is a financial agreement?

A financial agreement is essentially a contract that determines how some, or all, of the property, liabilities and superannuation of the parties will be dealt with if they separate. A financial agreement may also address the issue of spousal maintenance, requiring one party to financially support the other. This occurs when one party is unable to support themselves adequately, and the other party has the capacity to pay.

A financial agreement may be entered into at any stage of the relationship spectrum – whether couples are:

• contemplating living together
• already living together
• contemplating marrying
• already married
• separated.

How can an infidelity clause be included in a financial agreement?

Financial agreements may address ‘matters incidental or ancillary to’ the division of assets. Family lawyers call these ‘lifestyle clauses’, and they could include issues such as infidelity, regularity of sex, or how household chores will be performed between the couple.

Currently, there is no case law guiding lawyers as to whether judges will consider lifestyle clauses valid and enforce them. Therefore, including an infidelity clause in your financial agreement comes with the potential risk that it won’t be binding.

However, if a couple insists on an infidelity clause, the current view is as follows:

• The agreement must be very clear what behaviour or acts constitute infidelity. For example, saying that the definition includes ‘emotional infidelity’ is unclear as it is a subjective phrase. Uncertainty of terms can be a ground for a financial agreement, or part of it, to be set aside.
• The agreement needs to provide for different financial outcomes depending on whether the parties comply with the clause. For example, that if a party is guilty of infidelity, then they will receive a lower cash entitlement under the agreement.

Can an infidelity clause be enforced?

There are two main concerns about enforcing infidelity clauses:

• Is there sufficient admissible evidence to show a party has not complied with the clause?
• Will judges enforce such clauses?

Where there is a significant financial impact if an infidelity clause is breached, the party adversely affected by the outcome is more likely to challenge it. It may be very difficult to obtain evidence that a party has not complied with their obligations. For instance, being told by a third party that your partner has committed an act of infidelity is hearsay and may not be admissible. Further, if the issue is litigated, then this defeats one of the key reasons parties enter financial agreements – to avoid protracted court proceedings.

Given the very limited cases on lifestyle clauses in financial agreements, there is also no certainty that judges will enforce infidelity clauses. It has been many decades since the issue of fidelity was relevant to the determination of a family law dispute. Judges may not be prepared to decide the issue, given that the Family Law Act only requires them to adjudicate certain disputes.

Are there are any other risks to consider?

A final risk is that the inclusion of an infidelity clause may affect the validity of the rest of your financial agreement. Having a substantive term that is determined to be invalid, or unenforceable, may create scope for the whole agreement to be set aside. Obviously, such an outcome defeats the purpose of the financial agreement entirely.

It should be apparent that including infidelity clauses in a financial agreement comes at a significant risk. We strongly recommend that clients avoid these clauses as the prospects are poor that judges will determine them to be both valid and enforceable.

If you have any questions about financial agreements, please do not hesitate to contact one of our experienced family lawyers.