The Federal Circuit and Family Court of Australia (FCFCOA) has recently overturned a financial agreement between a de facto couple after finding that one of the parties did not receive independent legal advice. This article highlights the ease with which financial agreements (or ‘prenups’) are overturned and the importance of each party to a financial agreement receiving independent legal advice.
Financial agreements were introduced in 2000 as a means of enabling couples to opt out of the jurisdiction of the Family Court to deal with property and spousal maintenance under the Family Law Act 1975 (Cth) (FLA). In 2009, de facto couples were also enabled to opt out of the jurisdiction of the Family Court through financial agreements. To be binding, a financial agreement must satisfy a number of statutory conditions under the FLA.
In the case of Bachman & Donohoe [2021] FedCFamC1F 240, the FCFCOA considered a financial agreement between a separated de facto couple, Bachman and Donohoe.
After the commencement of the de facto relationship, the pair agreed that Bachman would transfer to Donohoe a half share of her property. Donohoe paid consideration of $2,500,000 for the transfer. The parties then entered into a financial agreement in 2016, which documented the transfer, and then subsequently separated in 2019.
Mrs D, a solicitor, acted on the transfer of Bachman’s property. Mrs D also acted for both Bachman and Donohoe in the preparation of the financial agreement. The solicitor did not consider the conflict of interest that emerged when advising both parties. Additionally, Bachman had not given informed consent to Mrs D to act for both parties, which is a requirement under the Legal Profession Uniform Law.
In consideration of this case Justice Rees stated that “[a] solicitor who acts for both parties cannot give independent advice to one of them, even if the other party has been referred to another solicitor.” Her Honour Justice Rees therefore found that Bachman did not receive independent advice. Due to this, the financial agreement did not satisfy section 90UJ(1)(b) of the FLA. This section of the FLA requires that before signing a financial agreement, each spouse much be provided with independent legal advice.
Additionally, section 90UJ(1A)(c) of the Family Law Act 1975 (Cth) provides that a financial agreement may only be binding if a court is satisfied that it would be unjust and inequitable if the agreement were not binding on the parties. Donohoe did not give evidence of any injustice that he would be likely to suffer if the financial agreement were not binding. But Bachman asserted she would suffer injustice if this financial agreement were found to be binding.
As both parties did not receive independent legal advice and because it would be unjust to render the agreement to be binding, it did not fulfil the requirements of the FLA. Therefore, Justice Rees found that “the Financial Agreement executed by the applicant and the respondent on 22 June 2016 is not a Binding Financial Agreement.”
This case not only highlights the importance of receiving independent legal advice but shows how readily the FCFCOA may overturn financial agreements. While we do not doubt that the decision made by Justice Rees in this case was the right decision, the FLA appears to make it all too easy for parties to a financial agreement to back out of their agreement. This case also demonstrates the risks of relying upon a financial agreement. The risk being that it may always be possible for the FCFCOA to declare that it is not binding.
If you find yourself in difficulties with separation at the present time and require legal advice, contact our Family Law team today.
DISCLAIMER: The information contained in this article is general and is not intended to be advice on any matter. It is for information only and is not legal advice. In the event of a legal problem, you should seek legal advice.
