The importance of obtaining independent legal advice in relation to Financial Agreements

A Financial Agreement (FA) is like a private contract between you and your current or former partner that sets out how your assets, liabilities, financial resources and superannuation are divided in the event of separation. An FA removes the Court’s power to decide the financial issues between you and your former partner.

Parties can enter into an FA before, during or after a de facto relationship or marriage.

Financial Agreements have specific and technical requirements under the Family Law Act 1975 (Cth) (the Act) in order for them to be binding on the parties. One of these requirements is that before entering into the Financial Agreement, each party receive independent legal advice about:

1. The effect of the agreement on the rights of that party; and

2. The advantages and disadvantages of entering into the Agreement, at the time the advice was provided.

The recent case of Bachman & Donohoe[1] in Division 1 of the Federal Circuit and Family Court of Australia highlights the importance of obtaining independent legal advice before entering into a FA.

The facts of the case

Ms Bachman and Mr Donohoe were in a de facto relationship from around (either end of 2014 or early 2016) to 2019. At the start of the relationship, Ms Bachman owned a property. In 2015, the parties agreed that Ms Bachman was to transfer a 50% share in the real property to Mr Donohue in exchange for a payment of $2.5 million.  The transfer occurred on 10 March 2016.

On 22 June 2016, the parties entered into an agreement which purported to be a Financial Agreement pursuant to section 90UC of the Act (during a de facto relationship). The agreement stated how the assets and liabilities of the parties would be split in the event that they separated. The parties then separated in October 2019.

In this case, Ms Bachman was seeking to set aside the FA made on 22 June 2016, and a component of that meant that Ms Bachman argued that the FA did not satisfy the mandatory condition of s 90UJ(1)(b) of the Act: that each party receive independent legal advice about the FA. Ms Bachman received advice from a solicitor called Ms D.

Ms Bachman argued that the advice she received was not only not independent but also inadequate for the following reasons:

1. Ms D was a personal friend of Mr Donohoe.

2. Ms D was initially instructed by Mr Donohoe to organise the transfer of 50% of Ms Bachman’s interest in the real property to Mr Donohue and advise both the parties about it.

3. Ms D then commenced work on the Financial Agreement from 22 September 2015, at which time Ms Bachman had not given any instructions to Ms D in relation to the agreement.

4. Ms Bachman and Mr Donohoe met with Ms D in conference, together, on 23 October 2015, at which Ms D advised both parties about the FA.

5. Ms D addressed correspondence to both parties.

6. Shortly before the parties were to sign the Financial Agreement, Ms D referred Mr Donohoe to another solicitor, Ms B, to sign the agreement.

7. Ms D did not explain to Ms Bachman the advantages and disadvantages of the Financial Agreement or about the effect of the agreement on her rights.

It was not clear when Ms D first received instructions or from whom. Based on the evidence before it, the Court held that instructions were likely given informally at a social event by both of the parties.

The Court also held that the professional relationship between the parties and Ms D commenced with the transfer of the interest in the real property. Ms D acted for both parties in relation to both the refinancing of the mortgage and the transfer of the interest.

Ms D’s file note from the conference on 23 October 2015 made it clear that the proposed FA was discussed between all the parties. Mr Donohoe agreed that Ms D provided legal advice to both of the parties in relation to the proposed FA and that Ms D took instructions from both of them.

In cross-examination, Ms D stated that she did not appreciate that at the time she was advising the parties in relation to the FA or that there might be a conflict of interest. At the outset she regarded herself as acting for both parties in relation to the transfer and the mortgage but not in relation to the FA. However, Ms D agreed that she was advising both parties as to what terms should be in the FA – a discussion which continued for some time. It was clear that Ms D had not considered the possibility of a conflict of interest in advising both parties about the FA.

Mr Donohoe subsequently instructed a different solicitor, Ms B, between 17 June 2016 and 21 June 2016. However, Ms D continued to send emails to both parties. On 21 June 2016, Ms D emailed the parties with the FA referring to the need for Mr Donohoe to meet with Ms B to sign the document.

Decision

Judge Rees held that the terms of section 90UJ of the Act are clear (unequivocal). The requirement is that each party be given independent advice. A solicitor who acts for both parties cannot give independent advice to one of them as each party has separate and competing interests, even if the other party has been referred to another solicitor.

Ms D acted for both parties until Mr Donohoe instructed Ms B which was only five days before the FA was signed by the parties. Consequently, Ms Bachman did not receive independent legal advice from Ms D.

The FA was set aside and the matter referred to a Judicial Registrar for further directions.

Accordingly, the parties’ respective entitlements to the division of their property was to be determined by the Court if the parties themselves did not reach an agreement about the division (if any).

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This case highlights just how complex Financial Agreements can be.  A Financial Agreement is a very technical document and require expert advice that look after your interests.

Our Family & Relationship Law team has extensive experience in a wide range of family related matters. If you require legal advice or further information in relation to this article, please contact our Family & Relationship Law team.

[1] [2021] FedCFamC1F 240.