Binding Financial Agreements

Transcription

1 Binding Financial Agreements Law Institute of Victoria 23 October 2013 Paul Fildes BEc LLB DipFamLaw Accredited Family Law Specialist (LIV) Partner Taussig Cherrie Fildes Research by Justine Clark BA LLB (Hons) Associate Taussig Cherrie Fildes «File_Code»/«Document_Name»

2 Since the decision in Black & Black and the enactment of the Federal Justice System Amendment (Efficiency Measures) Act (No. 1) 2009 (Cth) ( the Transitional Act ) there have been a significant number of decisions relating to the requirements for a financial agreement to be binding pursuant to section 90G to oust the jurisdiction of the Court as provided for in section 71A, and to avoid being set aside under section 90K and / or rendered unenforceable pursuant to section 90KA. Rather than reviewing the decisions of the Court we will attempt to summarise the issues practitioners need to consider in drafting financial agreements:- 1. There must be an agreement in a contractual sense (per Strickland and Murphy JJ in Senior & Anderson (2011) FLC ). Provisions that must be included in an agreement Contractual Elements 2. The agreement must be expressed to be made under either section 90B, 90C, 90D, 90UB, 90UC or 90UD and comply with the requirements of the applicable section (Sullivan & Sullivan (2011) 46 Fam LR 164 per Young J). Please note the following requirements and in particular separation certificates required for certain agreements to take effect after separation and / or divorce or the break down of a de facto relationship:- pre-nuptial and agreements made during marriage and after divorce (a) section 90B requires the agreement to be executed by parties contemplating entering into a marriage, who are not spouse parties to any other binding agreement, that provides for how in the event of the break down of the marriage the property and financial resources of the parties are to be dealt with and / or spousal maintenance during and or after the marriage and divorce; (b) section 90C requires the agreement to be executed by parties during a marriage (before or after the marriage has broken down) and otherwise has the same requirements as a section 90B agreement; (c) section 90D requires the agreement to be executed after a divorce order is made and otherwise has the same requirements as a section 90B and 90C agreement; (d) section 90DA requires, for section 90B and section 90C agreements, that the parties execute a separation declaration for the agreement to be of force and effect following the breakdown of a marriage and prior to the termination of the marriage by divorce. The separation declaration must be signed by at least one of the parties to the agreement and state that the parties have separated and are living separately and apart at the time the declaration is made, and in the opinion of the spouse parties making the declaration there is no reasonable likelihood of cohabitation being resumed. (e) section 90E requires that a provision in a section 90B, 90C or 90D agreement in relation to the maintenance of a party to the agreement or children must state for whom the maintenance is provided and the amount or value attributable to maintenance or the provision is void; de facto agreements before, during and after a relationship (a) section 90UB requires the agreement to be executed by parties that are ordinarily resident in a participating jurisdiction (all states except Western Australia) and are contemplating entering into a de facto

3 relationship, who are not spouse parties to any other binding agreement, that provides for how in the event of a break down of the de facto relationship the property and financial resources of the parties are to be dealt with and / or spousal maintenance; (b) section 90UC requires the agreement to be executed by parties that are in a de facto relationship and otherwise has the same requirements as section 90UB; (c) section 90UD requires the agreement to be executed by parties to a former de facto relationship that has broken down and otherwise has the same requirements as section 90UB and 90UC; (d) section 90UF requires that for section 90UB, 90UC and 90UD agreements the parties to the agreement execute a separation declarations for the agreement to be of force and effect for the division of property and / or financial resources following the break down of the de facto relationship. The separation declaration must be signed by at least one of the parties to the agreement and state that the parties lived in a de facto relationship, that the parties have separated and are living separately and apart at the time the declaration was made, and in the opinion of the parties making the declaration there is no reasonable likelihood of cohabitation resuming. 3. To be binding the agreement must comply with the relevant and applicable version of section 90G (section 90UJ). (See Annexure A for the three versions of section 90G applicable to agreements made between 27 January 2000 and 13 January 2004, or between 14 January 2004 to 3 January 2010 or after 4 January 2010 to date (i.e. the current version)). Section 90G(1) requires that:- (a) the agreement is signed by the parties; and (b) before executing the agreement the parties were provided with independent legal advice from an Australian Legal Practitioner (Ruane & Bachmann- Ruane [2009] FamCA 1101 per Cronin J) as prescribed (effect of the agreement on the parties rights and the advantages and disadvantages); and (c) and (ca) before or after executing the agreement each party was provided with a signed statement stating that the advice was provided to that party and a copy be provided to the other party (see Hoult & Hoult [2013] FamCAFC 109 as to the evidentiary weight to be attributed to a certificate); and (d) the agreement has not been terminated or set aside. If (1)(b), (c) and (ca) above are not satisfied section 90G(1A) operates to ensure the agreement is binding if there is compliance with 90G(1)(a) and per 90G(1A)(c):- a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in the agreement from the time the agreement was made (see Parker & Parker (2012) FLC per Coleman and Murphy JJ, Hoult per Thackray J at [187] onwards and at [206] where he agreed with the majority that the test is whether it would be unjust and inequitable if the parties were not held to their bargain.

4 Equitable provisions - safeguards 4. Section 90K (section 90UM) An agreement may be set aside for:- (a) fraud (common law and equitable fraud) and / or material non-disclosure (ensure your client makes full disclosure of their financial circumstances); (aa) an intention to defeat creditors or a reckless disregard for the interests of creditors; (ab) an intention to defeat a de facto financial claim or a reckless disregard for the interests of an interested de facto party to a party to the agreement; (b) the agreement is void, voidable and unenforceable (and not able to be rectified please note rectification is available for common and unilateral mistake i.e. the parties were under a common misapprehension as to an error or omission in the agreement or one party mistakenly was of the belief that a term was included in the agreement and the other party was aware of that mistaken apprehension and took advantage of it to their benefit); (c) impracticality; (d) material change in a party s circumstances; (e) a party engaged in unconscionable conduct (consider whether there is duress / undue influence or a presumption of undue influence (i.e. between fiancées) or a special disadvantage or weakness that is known to a party that may be taken advantage of to bring about the agreement (per Amadio), also consider the time frame i.e. if prior to a marriage, adequate time to consider and execute the document and no duress or undue influence to effect execution); (f) and (g) superannuation provisions. 5. Section 90KA (section 90UN) An agreement may be enforced or rendered void, voidable or unenforceable pursuant to the principles of common law (contract) and equity. For example, it is possible that an agreement may be void for uncertainty or that an agreement may be enforced notwithstanding a deficiency due to acquiescence or laches. Considerations for a prudent practitioner 1. Recitals Set out the background to the parties relationship in the recitals. Other clauses to be included in the recitals are, for example in the case of a section 90C agreement in relation to spousal maintenance:- A. Sheila and Murray were married on [date] in [place] in the State of Victoria.

5 B. Sheila and Murray separated in or about [date] and each have signed the separation declaration annexed hereto and marked Annexure A. They have lived in separated dwellings since [date]. C. There are two children of the marriage namely [child 1], born [date], [child 2], born [date]. D. Sheila is 42 years of age having been born in Melbourne on [date]. She is currently engaged in home duties and enjoys good health save for suffering from arthritis. E. Murray is 52 years of age having been born in Melbourne on [date]. He is a company director by occupation and enjoys good health. Murray is currently employed with [company A]. F. In consideration of the provision made for Sheila pursuant to the terms of this deed she has agreed to waive for all time the right to seek spousal maintenance from Murray whether by way of lump sum payment, periodic or otherwise. G. In consideration of the provision made for Murray pursuant to the terms of this deed, he has agreed to waive for all time the right to seek spousal maintenance from Sheila whether by way of lump sum payment, periodic or otherwise. H. This deed is a financial agreement pursuant to the provisions of Section 90C(2)(b)(iii) of the Family Law Act 1975 (Cth) ( Act ). There is no other agreement in force between the parties pursuant to the provisions of section 90B, 90C or 90D of the Act. I. This deed operates in regard to the existing rights of the parties pursuant to the spousal maintenance provision of the Act. J. Sheila acknowledges that it is appropriate when Murray dies she will have no claim upon his estate other than as may be provided by Murray for Sheila under the terms of his Will. K. Murray acknowledges that it is appropriate when Sheila dies he will have no claim upon her estate other than as may be provided by Sheila for Murray under the terms of her Will. L. Before each party signed this deed of agreement, they received separate independent legal advice from a legal practitioner as to the following:- (a) the effect of the agreement on the rights of that party; and (b) the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement. M. Each party hereby acknowledges that they were each respectively provided with the advice and a signed statement by his or her legal practitioner stating that the advice referred to in Recital M hereof was so provided and appended to this deed and a that a copy of the respective statement has or will be provided to the legal practitioner for the other party. 2. Operative Provisions Consider the necessary operative provisions dependent on the matter and the party for whom you are acting.

6 For example in the case of a section 90C agreement in relation to spousal maintenance operative provisions may include:- 1. The recitals of this deed shall form part of the provisions of this deed. 2. The parties agree that:- (a) Sheila pay to Murray the sum of $1.00, which sum is attributable to maintenance for Murray until he dies; (b) Murray pay to Sheila the sum of $1.00, which sum is attributable to maintenance for Sheila until she dies; (c) the payment provided in clause 2(a) is offset against the payment in clause 2(b), and accordingly, each party acknowledges receipt of the moneys due to them. 3. In consideration for the financial provision for Sheila described in clause 2 hereof Sheila hereby waives and relinquishes for all time, any right or entitlement she may have to seek maintenance for herself pursuant to the provisions of the Act. 4. Sheila hereby accepts the entitlements conferred upon her by the terms of this deed and by the [Court Orders] in full satisfaction of her claim for maintenance for herself under the Act. 5. Sheila hereby acknowledges that the provision for her as set out in clause 2 hereof and one percentum (1%) of the value of her entitlement under the [Court Orders] is attributable to her maintenance until death in accordance with the provisions of Section 90E of the Act. 6. In consideration for the financial provision for Murray described in clause 2 hereof Murray hereby waives and relinquishes for all time, any right or entitlement he may have to seek maintenance for himself pursuant to the provisions of the Act. 7. Murray hereby accepts the entitlements conferred upon him by the terms of this deed and by the [Court Orders] in full satisfaction of his claim for maintenance for himself under the Act. 8. Murray hereby acknowledges that the provision for him as set out in clause 2 hereof and one percentum (1%) of the value of his entitlement under the [Court Orders] is attributable to his maintenance until death in accordance with the provisions of Section 90E of the Act. 9. Sheila and Murray will respectively sign and execute all such further documents and do all such further acts and things as the other of them shall reasonably require for the purposes of completely effecting the provisions of this deed. 10. Sheila and Murray hereby acknowledge that:- (a) each of them has had legal advice before executing this deed; (b) all claims of any nature relating to maintenance other than as provided by the [Court Orders] and this Agreement that either party has or may have against the other arising from the circumstances of their marriage or otherwise pursuant to the provisions of the Act are hereby absolutely settled and discharged. 11. The provisions of this deed will remain in full force and effect notwithstanding the death of Sheila prior to the fulfilment of her obligations hereunder and is binding upon Sheila s estate and her respective executors, administrators,

7 3. Records heirs, assigns and legal personal representatives. Sheila s extant obligations pursuant to the provisions of this deed will cease on Murray s death. 12. The provisions of this deed will remain in full force and effect notwithstanding the death of Murray prior to the fulfilment of his obligations hereunder and is binding upon Murray s estate and his respective executors, administrators, heirs, assigns and legal personal representatives. Murray s extant obligations pursuant to the provisions of this deed will cease on Sheila s death. 13. If the whole or any part of a provision of this deed is void, unenforceable or illegal in any jurisdiction it is severed for that jurisdiction. Sheila and Murray intent that the remainder of this agreement shall have full force and effect in that jurisdiction. 14. The terms and provisions of this deed constitute the entire agreement between the parties and supersede all previous agreements either verbal or written as between them and with respect to the subject matter of this deed. 15. The agreement evidenced by this deed will become operative upon pronouncement of the [Court Orders] by the [Court] of Australia. Retain file notes. Retain drafts of the agreement and revised drafts of the agreement. Ensure that prior to a party executing a financial agreement that a comprehensive letter of advice is provided including a statement to be signed by that party confirming that prior to executing the agreement they were provided with the advice detailed in the letter dated (1/1/2014) as to the effect of the agreement on their rights and the advantages and disadvantages of making the agreement at the time, and notwithstanding the advice they instructed you (their solicitor) that they understood the advice and determined to freely and voluntarily enter into the agreement. Ensure the statement attached to the letter of advice is executed before the agreement is executed by your client. Ensure that if the agreement is subsequently significantly amended you provided an updated letter of advice supplementing any prior letters of advice. Ensure that your client receives a copy of the statements executed by you and the other solicitor, and that a copy of the certificates are annexed to the executed agreement. 5. Professional Liability Consider the other practitioner that will be providing legal advice to the other party and the circumstances of the other party i.e. is it likely that they are at a special disadvantage, is there any presumption of undue influence, could the circumstances or timing of the agreement give rise to a suggestion of duress, has the other party made full disclosure of their financial circumstances and is that stated in open correspondence? Consider the risk of a subsequent negligence claim have you provided sufficient legal advice to ensure that the agreement is binding or in the alternative have you advised your client of deficiencies in the agreement that would result in it being set aside or rendered void, voidable or unenforceable?

8 ANNEXURE A FOR FINANCIAL AGREEMENTS MADE PRIOR TO, DURING OR AFTER DIVORCE Section 90G as currently in force, and as applicable to Financial Agreements made on or after 4 January 2010 (1) Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if: (1A) (1B) (1C) (a) (b) (c) (ca) (d) the agreement is signed by all parties; and before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement; and either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) was provided to that party (whether or not the statement is annexed to the agreement); and a copy of the statement referred to in paragraph (c) that was provided to a spouse party is given to the other spouse party or to a legal practitioner for the other spouse party; and the agreement has not been terminated and has not been set aside by a court. Note: For the manner in which the contents of a financial agreement may be proved, see section 48 of the Evidence Act A financial agreement is binding on the parties to the agreement if: (a) (b) (c) (d) the agreement is signed by all parties; and one or more of paragraphs (1)(b), (c) and (ca) are not satisfied in relation to the agreement; and a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and (e) the agreement has not been terminated and has not been set aside by a court. For the purposes of paragraph (1A)(d), a court may make an order declaring that a financial agreement is binding on the parties to the agreement, upon application (the enforcement application) by a spouse party seeking to enforce the agreement. To avoid doubt, section 90KA applies in relation to the enforcement application. (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. Section 90G as applicable to Financial Agreements made on or after 14 January 2004 to 3 January 2010 (1) Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if: (a) the agreement is signed by all parties; and (b) before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to that party of making the agreement;

9 (1A) (1B) Or (s 90G(1)(b) is also satisfied per item 8A(2)) if before signing the agreement, the spouse party was provided with independent legal advice from a legal practitioner about: (a) the effect of the agreement on the rights of that party; and (b) whether or not, at the time when the advice was provided, it was to the advantage, financially or otherwise, of that party to make the agreement; and (c) whether or not, at that time, it was prudent for that party to make the agreement; and (d) whether or not, at that time and in the light of such circumstances as were, at that time, reasonably foreseeable, the provisions of the agreement were fair and reasonable. and (c) either before or after signing the agreement, each spouse party was provided with a signed statement by the legal practitioner stating that the advice referred to in paragraph (b) or as italicised above (per item 8A(3)) was provided to that party (whether or not the statement is annexed to the agreement); and (d) the agreement has not been terminated and has not been set aside by a court. A financial agreement is binding on the parties to the agreement if: (a) the agreement is signed by all parties; and (b) (c) paragraph (1)(b) is not satisfied in relation to the agreement; and a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and (d) the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and (e) the agreement has not been terminated and has not been set aside by a court. For the purposes of paragraph (1A)(d), a court may make an order declaring that a financial agreement is binding on the parties to the agreement, upon application (the enforcement application) by a spouse party seeking to enforce the agreement. (1C) To avoid doubt, section 90KA applies in relation to the enforcement application. Section 90G as applicable to Financial Agreements made on or after 27 December 2000 to 13 January 2004 (1) Subject to subsection (1A), a financial agreement is binding on the parties to the agreement if, and only if: (a) (b) (d) the agreement is signed by all parties; and before signing the agreement, each spouse party was provided with independent legal advice from a legal practitioner about: (i) (ii) (iii) (iv) the effect of the agreement on the rights of that party; and whether or not, at the time when the advice was provided, it was to the advantage, financially or otherwise, of that party to make the agreement; and whether or not, at that time, it was prudent for that party to make the agreement; and whether or not, at that time and in the light of such circumstances as were, at that time, reasonably foreseeable, the provisions of the agreement were fair and reasonable; and the agreement has not been terminated and has not been set aside by a court.

10 (1A) A financial agreement is binding on the parties to the agreement if: (1B) (a) (b) (c) (d) (e) the agreement is signed by all parties; and paragraph (1)(b) is not satisfied in relation to the agreement; and a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties to the agreement (disregarding any changes in circumstances from the time the agreement was made); and the court makes an order under subsection (1B) declaring that the agreement is binding on the parties to the agreement; and the agreement has not been terminated and has not been set aside by a court. For the purposes of paragraph (1A)(d), a court may make an order declaring that a financial agreement is binding on the parties to the agreement, upon application (the enforcement application) by a spouse party seeking to enforce the agreement. (1C) To avoid doubt, section 90KA applies in relation to the enforcement application.