FAMILY LAW
Queensland Law Society and Family Law Practitioners Association
Saturday 15 September 2007 – Twin Waters Qld
ANNUAL NORTH QUEENSLAND LAW ASSOCIATION CONFERENCE
Delivered by
The Honourable Justice robert benjamin
Family Court of Australia hobart
Entitled
“fINANCIAL AGREEMENTS”
At the
gRAND MERCURE HOTEL
MACKAY, QUEENSLAND 30-31 MAY 2008
SATURDAY 31 MAY 2008
April 2008 – ©
Financial Agreements
Robert Benjamin
April 2008 – ©
FINANCIAL AGREEMENTS
Robert Benjamin
INTRODUCTION
In December 2000 Part VIIIA of the Family Law Act 1975 (Cth) came into effect via the Family Law Amendment Bill 2000 (Cth). This was a significant change to the law and was designed to enable parties to enter into binding financial agreements.
In the explanatory memorandum accompanying the first reading of the Family Law Amendment Bill 1999 (Cth) (as it then was), the policy behind the agreements was said to be:
Currently, under the Act people can make “pre-nuptial” and “post-nuptial” settlements about their properties. In recent years the use of these has been limited because they are not binding and the court is able to exercise its discretion over property with which these settlements deal. This was one of the major problems identified by the Joint Select Committee and in a number of other reviews of the existing law about family law property.
The Bill will make provision for financial agreements dealing with all or any of the parties’ property to be made before or during marriage or on marriage breakdown, setting out how such property is to be divided. People will be encouraged, but not required, to make financial agreements. For these agreements to be binding, each party will be required to obtain independent financial advice as to the financial effect of the agreement or independent legal advice as to legal effect of the agreement before considering their agreement, or both. Because the parties will have obtained prior advice, the court will only be able to set aside an agreement in certain limited circumstances, for example if it was obtained by fraud, duress or undue influence or where there was a significant change in the circumstances that would make it unfair to give effect to the agreement.
The further revised supplementary explanatory memorandum to the Family Law Amendment Bill 2000 (Cth) goes on to say:
The grounds for setting aside [agreements] include all common law and equitable grounds …
A court will also be able to set an agreement aside where there is a material change in the circumstances relating to the care, welfare and development of a child that would make it unfair to give effect to the agreement.
The manner in which the agreements were given power was by inserting
s 71A into the Family Law Act 1975 (Cth) which provides:
This Part does not apply to certain matters covered by binding financial agreements
(1) This Part does not apply to:
(a) financial matters to which a financial agreement that is binding upon the parties to the agreement applies; or
(b) financial resources to which a financial agreement that is binding on the parties applies.
Thus, the effect of a financial agreement that is binding upon the parties is to exclude the jurisdiction of a court exercising powers with regard to property and spousal maintenance under Part VIII of the Act. This does not preclude a court exercising jurisdiction under the Family Law Act 1975 (Cth) from determining questions as to whether a financial agreement or determination agreement is valid, enforceable or effective which may be done according to s 90KA.
In the second reading speech when the Bill came before the Senate, Senator Patterson observed:
The aim of introducing binding financial agreements is to encourage people to agree about how their matrimonial property should be distributed in the event of, or following separation. Agreements will allow people to have greater control and choice over their own affairs in the event of marital breakdown. Financial agreements will be able to deal with all or any of the parties’ property and financial resources and also maintenance ….
People will be encouraged, but not required, to make financial agreements. For these agreements to be binding, each party will be required to obtain independent legal advice before concluding their agreement. The provider of the advice will certify, on the agreement, that the advice has been given. Requiring the parties to obtain independent legal advice will mean that couples will be aware of the implications of the agreements that they are entering and will not unknowingly enter into an agreement that is not in their best interests.
Because parties will have obtained prior advice, the court will only be able to set aside agreements in certain limited circumstances reflecting the contractual nature of the agreement.
Sections 90B, 90C and 90D of the Family Law Act 1975 (Cth) provide that the agreements can be entered into before marriage, during marriage or after divorce. Interestingly there seems to be no legislative distinction between agreements entered into after marriage but before failure of the marriage and those which are entered into after marriage but after breakdown of the relationship. There are consequences in terms of Superannuation, Stamp Duty and Capital Gains Tax.
CHALLENGES TO FINANCIAL AGREEMENTS
Variation, discharge, termination and setting aside of binding financial agreements
If an agreement is entered into, it can be varied or discharged by entering into a termination agreement under s 90J or set aside by a court under s 90K(1). Section 90K provides that an agreement may be set aside as follows:
(1) A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
(a) the agreement was obtained by fraud (including nondisclosure of a material matter); or
(aa) either party to the agreement entered into the agreement:
(i) for the purpose, or for purposes that included the purpose, of defrauding or defeating a creditor or creditors of the party; or
(ii) with reckless disregard of the interests of a creditor or creditors of the party; or
(b) the agreement is void, voidable or unenforceable; or
(c) in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or
(d) since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection(2), a party to the agreement will suffer hardship if the court does not set the agreement aside; or
(e) in respect of the making of a financial agreement - a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable; or
(f) a payment flag is operating under PartVIIIB on a superannuation interest covered by the agreement and there is no reasonable likelihood that the operation of the flag will be terminated by a flag lifting agreement under that Part; or
(g) the agreement covers at least one superannuation interest that is an unsplittable interest for the purposes of PartVIIIB.
(1A) For the purposes of paragraph(1)(aa), creditor, in relation to a party to the agreement, includes a person who could reasonably have been foreseen by the party as being reasonably likely to become a creditor of the party.
Setting aside a financial agreement pursuant to s 90K(1) assumes the agreement is in fact binding. The first take in making or challenging such agreements is to determine if it is binding.
Valid binding financial agreements
Another basis upon which a financial agreement may be attacked is its own validity. A financial agreement will only be considered to be valid and binding if the requirements of s 90G are fulfilled. This section provides:
(1) A financial agreement is binding on the parties to the agreement if, and only if:
(a) the agreement is signed by both parties; and
(b) the agreement contains, in relation to each party to the agreement, a statement to the effect that the party to whom the statement relates has been provided, before the agreement was signed by him or her, as certified in an annexure to the agreement, with independent legal advice from a legal practitioner as to the following matters:
(i) the effect of the agreement on the rights of that party;
(ii) the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement; and
(c) the annexure to the agreement contains a certificate signed by the person providing the independent legal advice stating that the advice was provided; and
(d) the agreement has not been terminated and has not been set aside by a court; and
(e) after the agreement is signed, the original agreement is given to one of the parties and a copy is given to the other.
Note: For the manner in which the contents of a financial agreement may be proved, see section48 of the Evidence Act 1995 [(Cth)].
(2) A court may make such orders for the enforcement of a financial agreement that is binding on the parties to the agreement as it thinks necessary.
In Australian Securities and Investments Commission and Rich & Anor (2003) FLC 93-171 O’Ryan J said in relation to these s 90G requirements:
[64] Section 90G sets out the requirements that must be met for a financial agreement to be binding upon the parties. All the requirements must be satisfied for the agreement to be binding. These requirements are justified because the effect of a valid agreement is to oust the jurisdiction of the [c]ourt. However, there is no requirement of registration in the [c]ourt or approval by the [c]ourt of a financial agreement. Further, I am of the view that the requirements of s 90G are not stringent. All that is required is that the agreement be signed by both parties, include a statement addressing the matters in s 90G(1)(b) and attach a certificate from a legal practitioner.
Essentially s 90G(1) imposes the following requirements necessary for a binding financial agreement. The agreement must:
· Be in writing and signed by both parties;
· Contain a statement in accordance with s 90G(1)(b) that each of the parties has received independent legal advice from a legal practitioner as to the effect of the agreement, the rights of that party and the advantages and disadvantages at that time that the advice was provided to the party making the agreement;
· Have annexed to it a certificate signed by the legal practitioner stating that the advice was provided;
· Not have been terminated or set aside by the court; and
· After being signed, the original agreement is given to one of the parties and a copy given to another.
This form of certificate and these requirements are very similar to those provided under the Property (Relationships) Act 1984 (NSW) which has operated with regard to de facto relationships in New South Wales from 1984 onwards. What is remarkable is that there has been little or no litigation in relation to those de facto agreements in New South Wales over that period which is now well in excess of twenty years.
Interpretive approaches
There seems to be two approaches with regard to interpretation of s 90G of the Family Law Act 1975 (Cth). In J & J [2006] FamCA 442 (unreported) CollierJ dealt with a financial agreement. When that case came before his Honour it was asserted that the agreement had two deficiencies, namely that it did not contain a statement to the effect that the party to whom the statement related had been provided with the requisite independent legal advice, and the certificate contained incorrect wording. His Honour said:
[20] Something approaching full compliance, or something that if looked at in a less than strict light, might come close to compliance, is not enough.
Justice Collier was of the view that s 90G should be strictly interpreted and any failure to comply with that section deprived the agreement of being binding upon the parties. His Honour said:
[19] To my mind, the words that appear in s 90G(1) “if and only if” are words of real significance. They have a meaning. They import a requirement for a level of compliance, if the agreement is to be binding, that is clearly a standard or level above or beyond what might be described as substantial compliance… Compliance must therefore be full compliance satisfying the statutory requirements.
I took a somewhat different approach in Black & Black [2006] FamCA 972. In that case the parties entered into a financial agreement during the course of their marriage in circumstances where the husband had a belief that the wife was going to succeed in a personal injury claim where she would receive about $200,000, half of which would fall to him under the agreement. This was a short marriage with a small pool of assets of approximately $300,000. Most of these assets came from the husband’s contributions. The wife’s claim was settled for $40,000 and not the $200,000 which the husband had foreseen. The husband had been advised by his solicitor not to enter into the agreement and not to count on a significant settlement.