Australia: Proposed amendments may be the paracetamol needed for some lawyers and people entering agreements

Prenuptial Agreements: 2 December 2015
Last Updated: 6 December 2015
Article by Geoff Wilson

On 27 December 2000 the Commonwealth Government introduced financial agreements (including prenuptial agreements) with the intent If an agreement is binding, a court will not be able to deal with the matters with which the agreement deals. If an agreement is not binding, a court will be able to deal with the matters with which the agreement deals. A court will be able to deal with any property or financial resources of the parties that have not been dealt with by a binding financial agreement between them.

For the first 10-12 years following the introduction of the agreements successful court challenges to the agreements (largely due to a failure by lawyers and their clients to comply with the legislative requirements) saw many family lawyers make a conscious decision, rightly or wrongly, not to undertake any relationship agreement work due to the perceived risks. Many articles have been written about the reticence of senior family law specialists to prepare and advise on relationship agreements (for instance see "Prenups too risky for lawyers" Marianna Papadakis, AFR 24/7/15 p33; "Millionaire challenges $3.2m prenup with ex-dancer" Nicole Berkovic, The Australian 19/3/12; "Pole dancer appeal may end prenups", Sydney Morning Herald 23/02/13; and "George Brandis acts on protect families from violence" Nicola Berkovic, The Australian 26/11/15).

Is perception the reality? Whilst many senior family law specialists notably in New South Wales opted not to undertake the work, that was not the case with specialists in other States and Territories. We have and continue to prepare and advise on agreements for our clients including high profile clients both nationally and internationally. In the past 12 months my workload on agreements has increased and I have worked on international agreements including 2 agreements where the combined wealth of the clients exceeds USD12bn.

The demand for relationship agreements has not abated, but increased.

With proper preparation, compliance with the legislation and regard to the reported judgements of the courts, thorough attention to detail in drafting the agreement and delivering the requisite advice, the risks associated with the agreements are manageable. Whilst controversial and not required under the legislation an agreement ought to be fair (which conceptually differs from the parties' legal entitlements in property settlement absent the agreement).

As anticipated the family law courts have over the past 3 years provided clarity to lawyers and people entering relationship agreements. The message is loud and clear: if an agreement complies with the legislation and the parties make a conscious and fully informed decision to enter the agreement, then absent any vitiating factors (such as duress, undue influence, unconscionable conduct or misrepresentation), the court will hold the parties to their agreement even if it is a bad bargain for one of the parties. The Full Court in Hoult in 2013 stated:

"The point of the legislation is to allow the parties to decide what bargain they will strike, and provided the agreement complies with the requirement of s 90G(1) they are bound by what they agree upon. Significantly, in reaching agreement, there is no requirement that they meet any of the considerations contained in s 79 of the Act, and they can literally make the worst bargain possible, but still be bound by it."

The Family Law Amendment bill introduced into Parliament by Attorney General George Brandis last week if passed is designed to ensure agreements are "worth the paper they are written on"; will bolster the integrity of financial agreements and will make it more difficult to challenge an agreement.

The bill represents the fourth substantive change made to the law about financial agreements since the inception of the agreements in 2000. Each tranche of amendments have been designed to overcome perceived problems with the legislation. In some instances the amendments have been retrospective to cure agreements with problems and provided salvos for the lawyers responsible for the agreements.

The latest bill introduces significant changes to the law about financial agreements which is understandably welcomed by family lawyers and is likely to see some of the senior family law specialists who abandoned the work migrate back into it. Some of the amendments that will bring real change to the practice include:

  • [Legal Advice generally] The requirement for legal advice has been singled out into a separate provision (sections 90GA and 90UJA) and is worthy of consideration.
  • [Limiting the advice] The bill removes the requirement that lawyers advise their client about the advantages and disadvantages to that party of making the agreement at the time the advice is given. If the amendments are enacted the lawyer will only be required to advise their client of the effect of the agreement on the rights of the party under the Family Law Act. Therefore the requisite legal advice is not as extensive as it was. I suggest it will still be best practice to address with the client in formal advice, the advantages and disadvantages of entering the agreement (including an assessment of projected property settlement entitlements in the absence of an agreement).
  • [Client's acknowledgement] A new requirement has been introduced for the parties to provide a written acknowledgement that each received the required independent legal advice prior to entering the agreement. Such acknowledgment is then exchanged. This reflects best practice where parties sign receipts to that effect which are attached to the agreement.
  • [Presumption of regularity] Importantly the bill provides that a court is not to consider whether the legal advice was actually provided which overcomes a long line of authority of the court resulting in an examination of the advice actually given and scrutiny as to whether it rises to the requisite standards. The onus has rested on the party who relies on the agreement to establish the advice was given (practically by reference to the signed statement or certificate of advice) and then the other party sets about forensically examining the advice given and tearing it apart. Lawyers engaged in preparing agreements and giving advice will breathe a sigh of relief for the proposed change. In essence the amendment gives effect to a remedy known as the presumption of regularity which the Family Court had previously found did not apply to the requirements of a binding agreement (for instance see Murphy J. in Hoult (No. 1)[2011] FamCA 1023 @ para 87; and Thackray J. in Hoult [2013] FamCAFC 109).
  • [Declaration the agreement is binding] There are no substantive changes in the amendments other than to move the existing provisions to a separate section in the Act.
  • [Nil maintenance provision] The bill provides it will now be acceptable to identify an apportionment of maintenance under the agreement as "nil" under sections 90E and 90UH. This has been a long standing controversy well before the introduction of financial agreements relating to similar provisions in property orders under section 77A of the Family Law Act. The amendment seeks to reverse the findings of the court (see for instance Altobelli FM in Corney and Hose [2010] FMCAfam 1462) that a "nil" or nominal or notional or insubstantial apportionment is void. This is a sensible amendment which will enable parties who each are working and are capable of supporting themselves and do not have maintenance needs to contract out of future claims for maintenance against each other without having to provide any consideration other than entering the agreement. Importantly this amendment applies retrospectively to cure earlier agreements circulating with a nil allocation for maintenance under sections 90E and 90UH.
  • [Maintenance provisions cease on death] The proposed amendments introduce a significant change to when maintenance provisions in an agreement end. Currently the legislation (sections 90H and 90UK) provides that unless the parties specifically agree, maintenance will continue beyond the death of a party and binds the estate. The amendments reverse the current position and provide that unless the parties agree maintenance provisions cease on the death of the spouse party or the person liable to pay maintenance. Payments of maintenance made after death can be recovered.
  • [Maintenance provisions cease on remarriage or a de facto relationship] The proposed amendments introduce a new provision that maintenance provisions will cease when the recipient of maintenance remarries or enters a de facto agreement unless the agreement provided that maintenance will continue in those circumstances. Again maintenance provide after it ceases can be recovered.
  • [Setting aside agreement – "material change"] The amendments remove the requirement under sections 90K(1)(d) and 90UM(1)(g) for a material change of circumstance to have occurred related to the care of a child and simply require that an agreement may be set aside when a child or parent will suffer hardship of an exceptional nature or hardship relating to the care, welfare and development of the child.

The design of the amendments will ensure a more robust approach to upholding the agreements and may assist the Government alleviate the current stressors on the court system which is overloaded, under resourced, suffering inordinate delays and frankly broken.

People enter relationship agreements to provide certainty as to outcomes and avoid the waste of time, costs, risks and emotional drain of court proceedings. The bill reinforces such aspirations of parties by introducing objects and principles into the legislation (see sections 90AM and 90UAB) and in particular that parties to a "prospective, current or former" relationship should be able to take responsibility for resolving matters about property adjustment and spousal maintenance without involving a court and to provide certainty that the agreement will bind those parties.

The Australian cases where the courts have upheld the agreement (whether a financial agreement that is binding or otherwise) implicitly recognise the parties' freedom to contract and the autonomy of the individual. Unlike Australia, there is currently no legislation governing prenuptial and post nuptial agreements in the United Kingdom. The validity of the agreement is determined under common law. The courts of the United Kingdom have been prepared to uphold the provisions of a prenuptial agreement particularly in respect of the parties' property settlement terms. The landmark (Supreme Court) decision in the United Kingdom is Radmacher v Granantino [2010] UKSC 42; [2011] 1 All ER 373 (referred to in the Family Court decisions of Paul and Paul [2011] FamCA 672 and Weldon and Asher [2014] FCWA 11). Within the Court of Appeal judgment of Radmacher Lord Justices Wilson and Thorpe make the following observations about judicial intervention into relationship agreements:

Lord Justice Wilson said: "I suffer forensic discomfort about the lack of clarity about the treatment of prenuptial contracts under our present law and a loss of confidence in the justice of an approach which differs from that adopted by most of the other jurisdictions to which we have the closest link..... the very basis of our present law also concerns me." He said it was "patronizing, in particular to women" to approach prenuptial contracts on the "unspoken premises [that] prior to the marriage, one of the parties, in particular the woman is by reason of heightened emotion and the intention of desire to marry, likely to be so blindly trusting of the other as to be unduly susceptible to the other's demands even if unreasonable." He said that he would "prefer the starting point to be for both parties to be required to accept the consequences of whatever they have freely and knowingly agreed".

Lord Justice Thorpe said: "Due respect for adult autonomy suggests that, subject of course to proper safeguards, a carefully fashioned (prenuptial) contract should be available as an alternative to the stress, anxieties and expense of a submission to the whip of the judicial discretion."

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