Thursday, 3 December 2009

Danger! Danger! Binding financial agreements ahead!

Danger, Will Robinson! Danger!



The Senate passed the Federal Justice System Efficiency Measures Bill (No 1) 2008 on 26 October, 2009. The House agreed to the Senate amendments on 24 November. The Bill comes into effect 28 days after it received Royal assent, so it should come into effect in time for Christmas, but applies to all binding financial agreements, whenever they were signed.
The effect of the Bill, affecting binding financial agreements, is that clients should use consent orders, not binding financial agreements.

The Bill was designed to tackle the view of the Full Court of the Family Court's judgment in Black and Black- that decision which required that binding financial agreements meet the strict requirements of the Act or they will be struck down.

In a classic case of overkill, the response from the Federal Attorney-General's Department was not merely to require that binding financial agreements had to be substantially, rather than strictly compliant. Instead, there is now a requirement for advice to have been given before the agreement is signed and that a statement to that effect is signed by the lawyer concerned. It will no longer be mandatory for the certificate of legal advice to be annexed to the agreement.


The requirement to prove that one party has the original and the other a copy is also removed.


The difficulty with the changes is that they require the advice to have been given- which means that a party seeking to resist an application to set aside an agreement (or seeking to enforce it) will have to prove that both lawyers gave the advice- not merely signed documents to say that the advice was given.


This step will mean that the opposite intention of the Bill is the result- financial agreements will be less attractive because the risk level is increased, not decreased, and so far as lawyers are concerned, any lawyers who might contemplate advising a client about an agreement will now consider not doing so, or charging such a high fee to cover the risk that the client will be repelled from proceeding with the agreement (or at least with that lawyer).


Senate Legal and Constitutional Affairs Committee






2.29 The items in this schedule largely respond to the decision in Black v
Black, a
decision of the Full Family Court which held on appeal that a
financial agreement
made under the Family Law Act did not meet the strict
requirements that a statement
be annexed to the financial agreement
evidencing that the parties had received
independent legal advice in relation
to all matters set out in the relevant provision. The
Full Court held that
strict compliance with the provision was required in order for the
financial
agreement to be binding.
2.30 Financial agreements of this type are commonly
referred to as 'pre-nuptial
agreements'. Amendments discussed below are
proposed in order to secure the
validity of existing financial agreements and
to give certainty to contracting parties.
2.31 The Bill also addresses
concerns about possible inconsistencies that may
occur in relation to third
parties being excluded from financial agreements. In 2000,
financial
agreement provisions were introduced to the Family Law Act and
replaced
'maintenance agreements'. In maintenance agreements it was clear
that there could be
third parties to the agreements, for example someone
other than the parties to the
relationship such as creditors or trustees who
may have an interest in the property or
assets of the parties. Following the
2000 amendments, there was some concern that
the provisions did not
explicitly recognise the possibility of third parties to
financial
agreements.
2.32 This situation was addressed in the Family Law
Act Amendment (De Facto
Financial Matters and Other Measures) Act 2008 where
the definition of 'spouse
party' was broadened for the purposes of financial
agreements made under Parts VIIIA
and VIIIAB of the Family Law Act.
2.33
Part VIIIA of the Family Law Act allows married persons to enter
into
agreements as to the division of property in the event of a marriage
ending.
Agreements can be entered into either before, during or after
marriage. On 10
November 2008, the Federal Parliament passed the Family Law
Amendment (De
Facto Financial Matters and Other Measures) Act 2008, which
introduced a new Part
VIIIAB to the Family Law Act to deal with de facto
financial matters. These matters
were previously dealt with exclusively by
state courts under state law however the
new Part VIIIAB puts these matters
under the jurisdiction of the Family Court and the
Federal Magistrates
Court.
2.34 These amendments did not apply to termination agreements. The
Bill seeks to
ensure that the broadened definition of 'spouse party' applies
to both financial and
termination agreements for married and de facto
couples, thereby allowing third
parties to be included in such agreements.
These amendments are not related to the
Full Court's decision in Black v
Black but seek to apply the same arrangements for
financial and termination
agreements to both married and de facto couples.
Page 8
2.35 Item 1 of
Schedule 5 clarifies that a termination agreement under Part VIIIA
of the
Family Law Act between parties to a marriage can include another person
or
persons as a party to the agreement.
2.36 Items 2, 3 and 4 relax the
requirements for evidence that a spouse party to a
financial agreement has
obtained independent legal advice when entering into such
agreements. At
present the Family Law Act, through sections 90G(1)(b) and
90G(1)(c),
requires a statement that the spouse party to whom the agreement relates
has
been provided with independent legal advice from a legal practitioner as to
the
effect of the agreement on their rights and the advantages and
disadvantages to that
party. This statement must be contained in an annexure
to the agreement along with a
certificate by the legal practitioner providing
the advice, stating that the advice has
been given.
2.37 Item 2 will amend
this requirement so that before signing the agreement each
spouse party is
required to be provided with independent legal advice about the effect
of the
agreement on their rights and the advantages and disadvantages of such
an
agreement. They must also be provided with a signed statement by the
legal
practitioner stating that the advice was given to the party.
2.38
Item 4 removes the requirement that the original agreement is given to one
of
the spouse parties and a copy be given to each of the other
parties.
2.39 Item 3 is a minor technical amendment as a consequence of the
proposed
repeal of section 90G(1)(e).
2.40 Items 5 – 7 mirror the
amendments proposed at items 2 - 4 by applying the
same requirements for
spouse parties to obtain legal advice in relation to termination
agreements
made under section 90J of the Family Law Act.
2.41 Item 8 clarifies the
application of these amendments and makes it clear that
they will apply to
financial agreements and termination agreements that have been
made on or
after 27 December 2000, the date of commencement of the provisions that
were
inserted into the Family Law Act that allowed for financial agreements to
be
made. Subitem 2 provides that the amendments won't apply to an agreement
that is the
subject of a court order setting aside the agreement.
Part 2 –
financial matters relating to de facto relationships
2.42 Item 9 mirrors the
proposed amendment at Item 1 of Schedule 5 (refer
paragraph 2.35 above) and
clarifies that a termination agreement under Part VIIIAB of
the Family Law
Act can include another person or persons as a party to the agreement.
2.43
Items 10 - 12 amend section 90UJ of the Family Law Act which deals
with
requirements to obtain independent legal advice in relation to Part
VIIIAB financial
agreements. These amendments mirror those described at
paragraphs 2.36 – 2.39 and
will have the same effect in relation to financial
agreements made between de facto
couples.

2.44 Items 13 - 15 amend
section 90UL of the Family Law Act dealing with the
termination of Part
VIIIAB financial agreements and will have the same effect made
by items 5 - 7
except that they apply to financial agreements between de facto couples.
2.45
Item 16 amends section 90UM of the Family Law Act which deals with
the
setting aside of financial agreements and termination agreements. The
grounds for
setting aside these agreements are the same for parties to a
marriage as they are for
parties to a de facto relationship with one
exception. Section 90UE provides for the
continued operation of written
agreements made by de facto couples under the de
facto financial law of a
non-referring State covering property settlement or spouse
maintenance
matters if the couples later satisfy a geographical connection with
a
referring state or territory.
2.46 Item 16 replaces the existing
subsection 90UM(5) with a provision to allow
the court to set aside a Part
VIIIAB financial agreement covered by section 90UE if
the agreement was not
made in compliance with the requirement for parties to be
provided with
independent legal advice about the effect of the agreement on their
rights
and the advantages and disadvantages.
2.47 Item 17 deals with the application
of amendments made by items 10 – 15. The
amendments will apply to agreements
made on or after the day of commencement of
item 1 to Schedule 1 of the
Family Law Act Amendment (De Facto Financial Matters
and Other Measures) Act
2008, except where the court has made an order setting
aside an
agreement.
Commencement
2.48 Clause 2 of the Bill provides for
commencement of the Act. Sections 1 to 3
and Schedules 1, 2, 3 and 4 commence
on Royal Assent. Schedule 5, items 2 to 8
provides for commencement on the
day after Royal Assent.
2.49 The commencement of Schedule 5 item 1 and Part 2
of the current Bill
relating to binding financial agreements are dependent on
the commencement of
Schedule 1, item 1 of the Family Law Amendment (De Facto
Financial Matters and
Other Measures) Act 2008. This Act was assented to on
21 November 2008 but as yet
item 1 of Schedule 1 has not commenced. Item 1 of
Schedule 1 is due to commence
on a single day to be fixed by Proclamation, or
on 22 May 2009, whichever occurs
first.

Law Council submission


The Committee said:




The committee received one submission from the Law Council of Australia.
This
submission was made on behalf of the Council's Family Law Section.
3.2 The
submission focuses on the amendments proposed in Parts 1 and 2 of
Schedule 5
designed to relax the technical requirements in relation to evidence
that
spouse parties have to provide when entering into financial agreements.
While not part
of the current inquiry's terms of reference, the submission
also recommends
consistency between the legal formalities required for
binding financial agreements
and child support agreements as well as the
restructuring and renumbering of the
Family Law Act.
3.3 As only one
submission was received, this chapter focuses on proposed
amendments to the
Family Law Act in Schedule 5 of the Bill.
Issues raised in Law
Council's submission

3.4 The submission states that the policy
intent of the Bill related to the
requirements for evidencing that legal
advice has been sought by both parties to a
financial agreement is not met by
the amendments. The Law Council's submission
contends that the way in
which the amendments to sections 90G and 90J1 of the
Family Law Act have been
drafted, dealing with what needs to be satisfied in order for
financial
agreements to be made and terminated, creates the potential for disputes
to
arise that have to be resolved by the Court.
This is of course
contrary to the intent of
the provisions which are designed to allow parties
to make agreements without having
to use the Court.
3.5 The submission
notes that Part VIIIA of the Family Law Act was introduced
to allow parties
to resolve property and maintenance issues by way of private
agreement,
providing for greater choice and a more efficient and less costly means
of
dispute resolution than resort to the Family Court. Prior to the
introduction of these
provisions, for agreements between parties to be
binding they had to be approved by a
Judge.
3.6 Part VIIIA allows parties
to agree and implement their own agreements and
their termination without
involving the Court. A key reason for requiring parties to
evidence that they
have received advice on the legal effect of the agreement before
concluding
it is that it can only be set aside by the Court in limited
circumstances.
"The effect of a binding agreement is to extinguish the
jurisdiction of the Court in
relation to the subject matter of the
agreement…".
3.7 The submission endorses the requirement in sections 90G and
90J that before
signing the agreement, a spouse party be provided with
independent legal advice
about the effects of the agreement on the rights of
that party and supports the
requirement for a legal practitioner to provide a
signed statement confirming that the
advice was provided to the party.
3.8
The submission states that the drafting of the amendments to sections 90G
and
90J has been done in such a way that conflates the following
elements:
1. The requirement for the legal advice to be given; and
2. The
requirement that the statement of the legal practitioner be provided
before
the agreement is signed by the party.
3.9 The Law Council suggests
that this gives rise to a potential dispute about the
order in which the
various steps occur and the possibility that the agreement can be
found to be
invalid if the advice is given prior to signature but the legal
practitioner's
statement is not provided to the spouse party until after the
agreement has been
signed.
If, as is clearly the case, the
intention is to have written confirmation that the required
advice has been
provided before the agreement is signed, it should not matter whether
the
statement confirming this is signed before, after, or at the same time as
the
agreement.
3.10 Rather than relaxing the requirements in relation to
evidence of independent
legal advice when entering agreements or their
termination, the submission states that
the amendments add a new
hurdle of the signed statement of advice having to be
provided to the party
before the agreement is signed by that party
while the
policy
objective should be to have evidence that the advice has been
given.
3.11 The Attorney-General has responded to the committee by stating
that the
requirement to obtain a statement evidencing receipt of independent
legal advice prior
to the signature of an agreement ensures that parties will
not be left in an uncertain
situation about the binding nature of the
agreement which has the potential to occur if
it were open to spouse parties
to obtain such a statement before, during or at the same
time as signing the
agreement. It provides a clear direction to spouse parties to obtain
legal
advice before signing an agreement.
3.12 The submission also raises
issues related to the validity of existing
agreements. Item 8 of schedule 5
is designed to ensure that the amendments related to
financial agreements
apply to agreements made on or after 27 December 2000. The
submission states
that the way in which the amendments are drafted means that they
will have to
conform to the requirements of the amending provisions.
3.13 The
Attorney-General has indicated that he has asked his Department to
consider
this issue.
3.14 The submission raises several other issues not strictly
related to the inquiry's
terms of reference but related to the Family Law
Act.
3.15 The submission provides information on a number of areas that the
Family
Law Section of the Law Council believes will improve the operation of
the Family
Law Act and states that these have been raised with the
Attorney-General. The
submission advises that the Law Council has previously
recommended that these
issues be dealt with at the same time as the current
amendments.
3.16 The submission also recommends that the Child Support
(Assessment) Act
1989 be amended to ensure that the requirements for child
support agreements are
consistent with the amendments discussed above in
relation to financial agreements in
the Family Law Act.
3.17 As this Act
is administered by the Department of Families, Housing,
Community Services
and Indigenous Affairs (FAHCSIA), amendments to this Act are
the
responsibility of the Hon Jenny Macklin MP. The committee understands
that
officers in the Attorney-General's Department are liaising with officers
of FAHCSIA
to consider the Law Council's suggestion.

Digest summary






28. A financial agreement may be made before, during or after the marriage.
The advantages and disadvantages of entering the agreement may vary
significantly during the course of the marriage, so it is important that the
advice set out the effect of the agreement on the rights of the party and about
the advantages and disadvantages at the time that the advice was provided.
Schedule 5—Binding Financial Agreements
Part 1–Financial agreements
Item 2 repeals existing paragraphs 90G(1)(b) and (c) of the Family Law Act
and inserts proposed paragraph 90(G)(1)(b) to clarify and simplify what each
spouse party is provided with before signing a financial agreement. Each spouse
party will be required to have independent legal advice about the effect of the
agreement on their rights, and the advantages and disadvantages of entering the
agreement at the time the advice was given; and a signed statement by the legal
practitioner providing the advice to that spouse party stating that this advice
was given to the party.28
Item 5 repeals existing paragraphs 90J(2)(b) and
(c) and inserts proposed paragraph 90J(2)(b). This amendment is similar to item
2. It clarifies and simplifies what each spouse party is required to have prior
to signing a termination agreement, being (as is the case in relation to
financial agreements under proposed paragraph 90G(1)(b)) independent legal
advice from a legal practitioner about the effect of the agreement on the
party’s rights, the advantages and disadvantages of entering the agreement at
the time the advice was provided, and a signed statement from the legal
practitioner stating that the advice was given to the party.

Warning: This Digest was prepared for debate. It reflects the legislation
as introduced and does not canvass subsequent amendments. This Digest does not
have any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill. Federal Justice System Amendment
(Efficiency Measures) Bill (No.1) 2008

Sub-item 8(1) provides that the amendments made by items 2 to 7
in this Schedule apply to financial and termination agreements made on or after
27 December 2000. This is the date that the provisions dealing with financial
agreements (inserted by the Family Law Amendment Act 2000 No. 143) commenced.
However, sub-item 8(2) states that these amendments do not apply to an agreement
if a court has made an order to set the agreement aside prior to the
commencement of this item. While the amendments are thus of retrospective
operation, they are unlikely to affect a party’s substantive rights in any
significant way, given that at present the law requires the agreement itself to
contain a statement that each party has received independent legal advice of the
sort set out in proposed subparagraph 90G(1)(b)(i), and for a certificate signed
by the person providing the independent legal advice to be annexed to the
agreement. However a party may incur additional and unreasonable expense if the
Court refuses to accept an agreement for filing because the statement is annexed
to the agreement (as per the current law) instead of that statement being given
to the party before he or she signed the agreement under the proposed amendment.
Part 2–Financial matters relating to de facto relationships
Item 10
repeals paragraphs 90UJ(1)(b) and (c) of the Family Law Act and inserts proposed
paragraph 90UJ(1)(b) in their place. Paragraphs 90UJ(1)(b) and (c) were inserted
by the Family Law Amendment (De Facto Financial Matters and Other Measures) Act
2008 (which is not yet in force). The amendment is similar to the amendment made
by item 2 but deals instead with financial agreements between de facto partners.
Before signing a financial agreement, each spouse party is required to be
provided with independent legal advice from a legal practitioner on their rights
and the advantages and disadvantages of making the agreement at the time when
the advice was given. The legal practitioner giving the advice is required to
give the spouse party a signed statement stating that the advice was given to
that party. Similarly, item 13 repeals paragraphs 90UL(2)(b) and (c) and
substitutes proposed paragraph 90UL(2)(b) setting out what a spouse party must
receive before signing a termination agreements between de facto partners.
Section 90UM of the Family Law Act (which was inserted by the Family Law
Amendment (De Facto Financial Matters and other Measures) Act 2008, but is yet
to commence) deals with the circumstances in which a court may set aside a
financial agreement or termination agreement. Item 16 amends subsection 90UM(5)
and states that if at least one of the spouse parties has not had independent
legal advice concerning their rights and the advantages and disadvantages to
that party of making the agreement before signing the agreement, or if they did
not receive a signed statement from the legal practitioner to say that they had
received this advice, then the court may set aside the agreement if it would be
unjust and inequitable not to do so.
Sub-item 17(1) provides that the
amendments made by items 10 to 15 apply to agreements made under sections 90UB,
90UC or 90UD and termination agreements under Part VIIIAB of the Family Law Act
1975. They apply to agreements made on or the day
after item 1 of Schedule 1
to the Family Law Amendment (De Facto Financial Matters and Other Measures) Act
2008 commences. Sub-item 17(2) states that if a court has set aside an agreement
prior to commencement of these provisions, the amendments do not apply in
relation to that agreement.



Unfortunately, this is of little assistance:



The bill responds to the decision of the full court of the Family Court of
Australia in Black v Black. The bill amends the Family Law Act in particular to
limit the technical requirements that people need to meet to enter into
prenuptial agreements, while still providing necessary protections to parties,
such as the requirement to obtain legal advice. It will restore confidence in
the binding nature and enforceability of financial and termination agreements
under the Family Law Act.

Explanatory memorandum


The explanatory memorandum can be found here.

1 comment:

Anonymous said...

You say that "...changes require the advice to have been given- which means that a party seeking to resist an application to set aside an agreement (or seeking to enforce it) will have to prove that both lawyers gave the advice- not merely signed documents to say that the advice was given."
- How would this be proved? would lawyers have to attest to this or swear an affadavit or something?