What Is a Financial Agreement?

A financial agreement is a contract signed between two spouses where the main purpose is to ensure that at the end of the marriage no economic disputes will arose between the couple, so that each of them will be entitled to receive and hold what he/she was promised in the prenuptial agreement. In other words, the couple independently choose how the division of property and assets will be implemented, by determining the distribution in an agreement.If a financial agreement was not signed, then you must go according to the arrangements set in the Property Relations Law, where by if the couple divorce, each one is entitled to receive half of the assets accumulated during their marriage.Apart from the distribution of the money between them, the couple is allowed to determine in the agreement other understandings such as the alimony amount, social rights, future inheritance or gifts.The main benefit in drawing a financial agreement is the prevention of ugly legal litigation and fights, regarding common property, in court at the end of the marriage, which might harm both sides and especially the children.

How can the financial agreement be legally binding?

According to article 2 (a) of the Property Relations Law 5733-1973, a financial agreement (and any change made to it in the future), needs to be validated in the family court or the religious court that has the authority to rule on marriage and divorce matters, i.e. the Rabbinical court if the couple are Jewish.

Can the court legally bine a financial agreement that was not approved?

This question hasn’t received an unequivocal answer by the courts in Israel, however, according to the common law, if the parties to the agreement acted according to it, they will be prevented from filing a claim against each other regarding the lack of validity due to the fact that the agreement was not approved in court by virtue of the principle of good faith.Therefore, there might be a case where, although the financial agreement was not approved according to the law, the court may grant such an agreement legally binding status.

Can an arbitrator validate a financial agreement?

In a judgment given recently by the Supreme Court, Justice Yoram Danziger ruled that, an arbitrator is not authorized to approve a financial agreement which has been formulated between spouses during an arbitration proceeding conducted by him and cannot give this agreement the validity of an arbitration ruling, since a financial agreement which predicts divorce, will always be subject to the approval of the Family Court or of the Rabbinical court, who must ensure that the couple have made the agreement with "freely given consent and that they understand the significance and implications of it." It is further clarified in the ruling, that the arbitrator could help formulate a financial agreement but has no authority to approve it and give it binding legal effect.When a settlement agreement formulated between the spouses during the arbitration is "standard", there is no fundamental reason preventing the arbitrator from giving such an agreement the validity of an arbitration ruling, provided, of course, that the parties have authorized him/her to do so.The procedure of authorizing such an arbitration ruling is identical to the procedure of authorizing a “standard” arbitration ruling (not a financial agreement) which settles each of the disputes and the court will review the authorization request according to the Arbitration law. On the other hand, if the formulated agreement is a financial agreement, the law that applies to it, is the Law of Property Relations between Spouses, so this agreement needs the authorization of the family court or the appropriate religious court certified according to the property law and not Arbitration law.Thus, even if the arbitrator has managed to arbitrate between the spouses and has helped them to formulate a financial agreement that settles their disputes, and even if the spouses have agreed to authorize the arbitrator to validate the financial agreement and give it the validity of an arbitration ruling – the arbitrator is not allowed to do so.So, when you want to formulate a financial agreement it has to be authorized by the family court or the Rabbinical court immediately after being signed, otherwise it might lack legal validity and would not fulfil its original purpose which is preventing future legal disputes, which might be long and tedious.SaveSaveSaveSaveSave