In the year 2000 the Family Law Act 1975 (Commonwealth) (“FLA”) was amended to include Part VIIIA, governing Financial Agreements. The purpose of Part VIIIA was to oust the jurisdiction of the Family Court to make property adjustment orders. These provisions finally enabled married spouses to enter into Binding Financial Agreements (“BFAs”) at various stages of their relationship. In 2008, Division 4 of Part VIIIAB was inserted to allow de facto spouses to do the same. In Western Australia, married spouses who want to enter into a BFA fall under Part VIIIA of the FLA. However, de facto spouses fall under Division 3 of Part 5A of the Family Court Act 1997 (Western Australia) (“FCA”).
Parties often elect to enter into BFAs because:
- They choose how to deal with their assets if they separate, rather than have this imposed by a court;
- It takes significantly less time and cost to prepare a BFA than to litigate;
- Court’s approval of the BFA before it is executed is not needed;
- The terms of the BFA remain confidential unless there are future related court proceedings; and
- How the parties elect to deal with their assets after separation does not need to be just and equitable.
Since the introduction of these new provisions, a number of applications have been made to the courts to enforce or set aside BFAs. Numerous BFAs were set aside, and some parties who were financially worse off after the court decision, sued the lawyers who drafted the BFA to recover their losses. For these reasons, some lawyers advise their clients not to enter into BFAs, and refuse to draft BFAs altogether.
The fact that BFAs have at times been set aside, and legal action may have been taken against lawyers who drafted them, should not deter lawyers from providing this vital service. Disputes over contracts date back to English decisions in the 1600’s. Clients suing their lawyers for drafting contracts which did not stand up in court is not a new phenomenon. Further, parties who seek to set aside BFAs generally do so because they are no longer happy with the division of the assets, not because of an error in the BFA (unless the error makes a provision inoperable). Parties may look for a way to set aside the BFA, similarly to looking for a ground to appeal a decision they are not satisfied with. Consequently, even if there are no obvious errors in a BFA, parties may still attempt to set it aside.
By keeping up to date with legislative changes and new case law, updating precedents, paying attention to detail, and being diligent, lawyers can be competent and confident in drafting and advising on BFAs despite potential future claims. In fact, failing to advise clients of BFAs as a potential for asset protection may itself leave the lawyer open to potential liability claims. When drafting BFAs, practitioners must be familiar with the types of BFAs available and the legislative requirements for drafting BFAs. A number of useful strategies are recommended that may be incorporated into lawyers’ practice, such as drafting in plain English, including all necessary clauses and operative provisions, and formatting for clarity and conciseness. Finally, practitioners must be familiar with recent case law, particularly with respect to grounds for setting aside BFAs.
Entering into BFAs has many benefits. Time, however, may result in significant changes to the parties’ circumstances, often not envisaged by them. As a result, parties may seek to set aside BFAs. Drafting applications to set aside a BFA is not an easy exercise. Lawyers must be well versed in the law pertaining to BFAs. They must obtain detailed instructions about the circumstances that led to the BFA being drafted and executed, and the circumstances that occurred since. Then they must advise their clients about the grounds that should be relied on, and the evidence needed to support these grounds. Clients must be advised that if they are unsuccessful in their application at first instance, appeals are uncertain and will incur significant legal costs. If they are unsuccessful, they may be ordered to pay the other party’s costs. To prevent any legal claims against the lawyer for alleged negligence in drafting BFAs which are set aside, lawyers need to keep detailed records of the instructions provided by the client, and the advice provided to them. This is particularly important if clients choose not to follow the advice of the lawyer.
This should not preclude lawyers from drafting BFAs for their clients. Although numerous applications setting aside BFAs have been successful, there are no doubt more BFAs which served their purpose and allowed parties who separated to divide their assets between them amicably, without ever resorting to litigation. This should encourage lawyers to continue providing this vital service to their clients.
How I can help
Having practiced as a solicitor prior to becoming a barrister I understand the challenges that solicitors face. Busy practitioners are under pressure to meet client and firm expectations. Managing a high number of complex files can be overwhelming.
I can assist you by advising you and your client on their prospects of success, the evidence you will need, by drafting or settling your material, and by appearing in court with you and your client. If you need assistance with any of these matters please contact me on 0466 547 787 or firstname.lastname@example.org.
This blog is a short summary of my papers “Drafting Binding Financial Agreements” and “Setting Aside Binding Financial Agreements” available on the “Speaker and Sessional Academic” page.