Binding Financial Agreements – the latest word


September 2, 2013 by Todd

A financial agreement is a document by which you and your partner or spouse can legally record the agreement which you reach about property settlement.  They include what are commonly called ‘pre-nups’.  You can enter into a financial agreement with your partner or spouse in one of the following circumstances:

1. Before you enter into a de facto relationship or get married;

2. During your de facto relationship or marriage; or

3. After the de facto relationship has ended or you have divorced.

One of the major reasons why people enter into financial agreements, particularly before the end of a relationship or marriage, is to provide some certainty about what will happen if their relationship breaks down.

Recent decisions of the Family Court have raised questions about when financial agreements are binding.  There have been cases where one party has been able to avoid a financial agreement by relying upon their own lawyer’s failure to properly advise them.  The other party, who had not done anything wrong, lost the protection of the financial agreement and was left at risk of having to pay their former partner or spouse much more than the financial agreement said.  Some family lawyers now refuse to advise clients on financial agreements, and particularly those commonly known as ‘pre-nups’.

The status of financial agreements, and particularly the requirement to obtain proper legal advice, has recently been considered by the Full Court of the Family Court.

Hoult & Hoult [2013] FamCAFC 109

In this case, a husband and wife had entered into a financial agreement before they were married.  They later separated and the wife sought to avoid the financial agreement by arguing that she had not received the legal advice which the Family Law Act requires.  The trial judge, Justice Murphy, made a number of findings.  Of particular relevance to this article were the following findings:

1. The certificate of independent legal advice signed by the wife’s lawyer did not prove that the wife had received the required advice;

2. The wife’s solicitor had not kept a written record of the advice which she had given to the wife.  Nor had she sent the wife a letter of advice.  She gave evidence at the trial, which Justice Murphy did not find helpful.

3. As a result, Justice Murphy was not satisfied that the advice had been given and declared that the financial agreement was not binding on the wife.

The Full Court decided that Justice Murphy was wrong to deal with the certificate of independent legal advice in the way that he did.  Instead, the Full Court held that:

1. The production of a certificate of independent legal advice by the person seeking to rely upon the financial agreement should lead to an assumption that the required legal advice had been given;

2. It is then a matter for the person seeking to avoid the financial agreement to put evidence before the court which disproves or throws into doubt the assumption arising from the production of the certificate.

There will no doubt be a number of articles written by lawyers and commentators about this decision.  Judges will consider what it means.  There will be debate about what evidence “disproves or throws into doubt” the certificate.  Indeed, there was a difference of opinion between the majority and the minority on that issue on the facts of this case.  The majority was of the view that the evidence in this case did not “disprove or throw into doubt” the certificate.  The minority was not so sure.  It is possible that other judges will disagree in the future.

What should you do?

Whether you are about to enter into a financial agreement, or you have separated and you want to know about the effect of a financial agreement which you have entered into, the most important thing you can do is to get legal advice from someone with a strong background in family law.  Let our knowledge be your edge.  Contact us now.


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