The recent appeal decision of Dragomirov and Dragomirov1 provides important guidance to family lawyers when advising clients about binding financial agreements.
Under section 90G of the Family Law Act (the Act), a financial agreement will only be binding if, prior to signing the agreement, each party received independent legal advice from a qualified lawyer as to the effect of the agreement upon their rights, and the advantages and disadvantages of signing the agreement at the time the advice was provided.
Background facts
In this case, the husband and wife commenced cohabitation in 1992, married in 1993 and had separated by March 2020. They had two adult children at the time of the proceedings.
In 2020, the parties negotiated the terms of a property settlement between them. The husband's solicitor, Mr C, was engaged on behalf of the husband to prepare a draft financial agreement to document the settlement. The wife engaged Ms W to act on her behalf.
On 19 May 2020, the wife met with Ms W. During that meeting, the wife read the draft financial agreement and Ms W provided advice to the wife. The wife also read a letter of advice provided to her by Ms W.
The letter of advice from Ms W to the wife set out the five-step process the court would adopt in determining her property settlement and, relevantly, confirmed:
"To properly identify the effect on your rights of entering into the Agreement, we need to explain how the Court might divide your property if [you and the husband] do not enter into a financial agreement."
..."The intended effect of the Agreement is to disregard the five-step process set out above and to divide your property and financial resources as provided for in the Agreement."
In April 2022, the wife filed an initiating application seeking, amongst other things, a declaration that the financial agreement was not binding as she had not received legal advice as required by section 90G of the Act.
The primary judge found that the advice received by the wife was sufficient to satisfy section 90G of the Act. As such, the financial agreement was held to be binding. The wife appealed that decision.
The appeal
The wife advanced seven grounds of appeal, however, only Ground 1 will be discussed below.
The wife challenged the primary judge's conclusion that she had received independent legal advice in compliance with section 90G of the Act.
The Appeal Court adopted the principles identified in the reasons of Aldridge J in the first instance decision of Abrum:
(a) In order to give advice about the effect of an agreement on the rights of a party...a legal practitioner must establish what those rights are at the time the advice is provided.2
(b) A party must know more than some unknown or undefined right is being given up. He or she must have some idea, at least in general, of his or her present entitlements or rights… with which he or she may compare the provisions of the proposed financial agreement. It is only in that way that there can be actual advice about the effect of the agreement on those present rights.3
(c) Proper identification of parties' rights can only be done by identifying the property of the parties then held and a consideration of the parties' contributions (financial and non-financial) to the acquisition of that property and to the welfare of the children. Any other relevant factors under s 79(4), including s 75(2), would then need to be considered. Only by doing so can advice be given that complies with the terms of s90G(1)(b).4
The Appeal Court found that:
- Ms W did not discuss the contributions of the husband and wife to the marriage or any of the factors in s75(2) of the Act. Adopting the principles identified in Abrum, this was a "requisite integer" in the circumstances of this case of the advice prescribed by section 90G of the Act5
- as the wife did not receive advice as to what she might achieve by way of her entitlements from a court under section 79 of the Act at the time of entering the agreement, she was unable to compare that with her position under the terms of the financial agreement. The general reference to the court's five-step process in the letter of advice was not sufficient as it had not been tailored to the history of the husband and wife's contributions and any relevant section 75(2) factors
- as a result, the wife was unable to weigh up or compare what would be her rights but for entering the agreement and those advantages and disadvantages after having entered the agreement.
The Appeal Court found the necessary advice prescribed by section 90G of the Act was not given and Ground 1 was established.
Ultimately, the financial agreement was held by the Appeal Court to be binding, notwithstanding that the requisite advice in section 90G was not provided, as it found it would be unjust and inequitable if the agreement were not binding on the parties in accordance with section 90G(1A) of the Act.
Key takeaways
This Full Court decision provides concrete guidance on the legal advice required to satisfy section 90G (and, by extension, the mirror requirement under section 90UJ relating to financial agreements for de facto couples) of the Act.
Lawyers should now ensure they take detailed instructions as to the parties' asset pool, their respective contributions and applicable section 75(2) factors, and advise their clients as to their present entitlements under section 79 of the Act at the time of entering into the agreement. This requires the provision of tailored advice with reference to the specific contribution history and relevant section 75(2) factors of their matter. It is only then that our clients will be able to compare their position with and without the financial agreement, and weigh up the advantages and disadvantages to them of entering into the agreement.
A tension still remains between the need for compliance with section 90G in the provision of advice, and the inability of a party to control whether adequate advice has been given to the other party. This still leaves innocent parties at potential risk of their agreement being set aside through no fault of their own. The best protection in this regard remains both parties being represented by specialist family lawyers whose advice will stand up to the requirements under the Act, as clarified by the Full Court in Dragomirov.
Our team of specialist family & relationship law practitioners have decades of experience drafting financial agreements. Please contact us to discuss how a financial agreement could work for you.
1 [2024] FedCFamC1A 187
2 Abrum v Abrum [2013] FamCA 897 [39].
3 Abrum, [40].
4 Abrum, [43].
5 Dragomirov, [55].
All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.
