Focus on property settlement: Case: Prenups and Binding Financial Agrements a lot harder to keep

Prenuptial agreements are able to be entered into as they are binding financial agreements under s90B of the Family Law Act. That Act also allows for binding financial agreements during marriage and after divorce. The same legal requirements apply to all three types of agreements.One of those requirements is that each of the parties solicitors certify the advice that they have given as an annexure to the agreement.

In a recent case, Black and Black, the Full Court of the Family Court of Australia had to decide whether a financial agreement was binding. The agreement was entered into shortly after they married. The marriage lasted all of 18 months.

The agreement proposed:

• the husband would sell his house;
• the monies from the sale of the house would go into a deposit account;
• the wife would put into the deposit monies that she was about to receive from a personal injuries claim;
• they would acquire another house;
• in the event their marriage broke down the new house would be deemed to be joint property; and
• it would be sold and divided equally between them.

The wife received her personal injuries monies, but they were a lot less than they had hoped, with the result that the husband, feeling badly done by, wanted to ensure that the agreement was not binding.

When the matter came on for trial, Justice Benjamin held that the agreement was binding. The husband appealed.

After the parties executed the agreement it was amended a few days later to exclude a sentence in clause 17 in relation to the maintenance of the parties and their children. The amendment itself was not an issue for the purposes of our determination, however the husband argued that it was problematic because his solicitor did not re-certify the agreement after the amendment was made.
After executing the original agreement the husband, on or around 6 September 2002, brought the amended agreement back to his solicitor and initialled the changes to clause 17.

A recital to the agreement stated:
“Each of the parties acknowledges that they have received independent legal advice as to the legal effect of this agreement prior to the execution of this agreement as evidenced by the lawyer’s certificate appended hereto.”

A clause of the agreement more specifically provides in relation to the husband:
“[The husband] acknowledges that prior to entering into this agreement he received from a lawyer acting independently of [the wife] and in the absence of [the wife] advice explaining the legal implications of this agreement and including but not limited to his rights and obligations pursuant to the Act and that this agreement excludes those rights and/or obligations. [The husband] further acknowledges that he is not acting under coercion or undue influence in the execution of this agreement.”

Another clause of the agreement provided a mirror clause to the above clause as to the independent legal advice received by the wife.

At the time they entered into the agreement, the Family Law Act provided, in effect, that the contents on the solicitors’ certificates also had to be contained in the agreement itself. The husband argued that the agreement did not do so.

The trial judge held:

The intention of Part VIIIA [the part dealing with binding financial agreements] is to enable ordinary people to enter into financial agreements which will deal with property and spousal maintenance and avoid the necessity of court proceeding. The agreements can be made before marriage and after marriage, whilst the relationship subsists or they can be made following the breakdown of marriage. The explanatory memorandum observes that it is the legislative intent to encourage the use of financial agreements under this Part of the Act. To enable such agreements to be binding the legislation requires that each of the parties to the agreements must have independent legal advice. If courts require strict interpretation of the legislation then this would have the effect of making such agreements less available to the broader community. It would positively discourage the use of financial agreements and it would limit the pool of legal practitioners who are equipped and willing to draft and/or advise in relation to such agreements. Such strict and inevitably narrow construction would add to the cost of such agreements and may put the cost to prepare and advise on them outside the financial means of the general community. That is not the legislative intent. The legislation does intend that the legal advice ought to be available Australia wide through the broad church of legal practitioners, whether specialist or not, whether in major capital cities, or in the suburbs or in the regions. Courts should not make the legal practitioners and the parties cross all of the “t’s” and dot all of the “i’s” to enter into and give effect to financial agreements. The form should not defeat the substance. The Act does not create a regime of strict compliance and there is a requirement on courts to give purpose to legislation. Accordingly, I will not be adopting a strict interpretive approach in terms of both the construction of the legislation and construction of the terms of the agreement. I will adopt the objective approach.

On appeal, the Full Court took a strict approach and upheld the appeal. It held:

The Act permits parties to make an agreement which provides an amicable resolution to their financial matters in the event of separation. In providing a regime for parties to do so the Act removes the jurisdiction of the court to determine the division of those matters covered by the agreement as the court would otherwise be called upon to do so in the event of a disagreement. Care must be taken in interpreting any provision of the Act that has the effect of ousting the jurisdiction of the court. The amendments to the legislation that introduced a regime whereby parties could agree to the ouster of the court’s power to make property adjustment orders reversed a long held principle that such agreements were contrary to public policy.

The Full Court found that it was not necessary to deal with the failure of the solicitor to recertify the agreement when it was amended, because the agreement did not strictly meet the requirements of section 90G of the Family Law Act and therefore was not binding.

Comment

The effect of this decision has sent shockwaves through some in the legal profession who are concerned that agreements will be easily set aside, resulting in many claims in matters that were otherwise settled.

It is absolutely imperative with these agreements that a very high level of compliance is reached, or the agreement will be set aside.