By Melissa Hine – Special Counsel
In the recent appeal case of Dragomirov & Dragomirov [2024] FedCFamC1A 187 (17 October 2024) (Dragomirov), the Full Court revisited the advice required for a Financial Agreement to be binding.
Facts of the Dragomirov case
The parties commenced cohabitation in 1992 and married in 1993. They separated in March 2020 after a 28-year relationship. At the time of the appeal, the husband was 55 and the wife was 54. The parties had two adult children, then aged 29 and 25.
Early in 1994, the parties acquired a property in Victoria. From around 2000, they operated a service business registered in the wife’s name. The wife primarily worked in that business, and the husband worked in the business outside of his full-time employment. During the marriage, the husband accumulated his superannuation entitlements.
Parties’ settlement agreement and their documented Financial Agreement
Shortly after separation, the parties negotiated the terms of their property settlement. The husband consulted a lawyer in early 2020. The husband’s law firm prepared a draft Financial Agreement, pursuant to section 90C of the Family Law Act 1975 (Cth), and the husband provided the draft Agreement to the wife.
On 5 May 2020, the husband’s lawyer contacted the wife’s lawyer to obtain the wife’s instructions in relation to the draft Financial Agreement. On 15 May 2020, the husband’s lawyer emailed a second draft of the Financial Agreement to the wife’s lawyer. On 18 May 2020, the husband’s lawyer emailed a third draft of the Financial Agreement to the wife’s lawyer.
The draft Financial Agreement detailed the parties’ net property (including superannuation) of $1,433,083. The equity in the real property was estimated at $618,000. The business and assets including a bank account were estimated at about $262,000. The husband’s superannuation was estimated at $500,000. No formal valuations were obtained.
Under the draft Agreement, the wife was to receive assets valued at $28,000 less than 50% of the total assets. It included statements that both parties were accepting the terms of the agreement in full and final settlement of their financial settlement.
On 19 May 2020, the parties attended a meeting with their respective lawyers at the offices of a firm where the wife’s lawyer occasionally used to meet her clients. This was the first time the wife met her lawyer or directly communicated with her. The wife met with her lawyer in the absence of the husband and his lawyer.
During their meeting, the wife’s lawyer provided advice to the wife about the proposed Financial Agreement, and the wife read a letter of advice prepared by the lawyer. The wife’s lawyer asked the wife if she had any questions. The wife said she did not. The wife acknowledged that she had read the letter of advice, signed the letter and said she wished to enter into the Financial Agreement.
In providing advice to the wife, the wife’s lawyer discussed the advantages and disadvantages of going to court as an alternative to the Financial Agreement. However, the wife’s lawyer did not advise the wife of her likely entitlements to a property settlement under section 79 of the Family Law Act. The wife’s lawyer gave evidence under cross-examination that she had a discussion with the wife about the advantages and disadvantages including a discussion of “future economic situations”. It was not tailored advice.
Both parties signed the Financial Agreement on 19 May 2020. Each party’s lawyer signed a certificate, included in the Agreement, pursuant to section 90G of the Family Law Act. The certificates stated that each lawyer had provided the required advice to their client about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time the advice was provided, to that party of making the agreement.
On 12 June 2020, settlement occurred with the house being transferred to the husband and the wife receiving a cash payment. There was a problem with the superannuation split due to errors in the Financial Agreement and at the time of the trial, the superannuation split had not been undertaken.
Wife issues proceedings
On 12 April 2022, the wife commenced court proceedings seeking a declaration that the Financial Agreement dated 19 May 2020 was not binding for want of compliance with section 90G of the Family Law Act. Specifically, she asserted that she had not been given adequate legal advice from a legal practitioner about the effect of the agreement on her rights and about the advantages and disadvantages of making the agreement.
In the alternative, she sought that the Agreement be set aside pursuant to section 90K(1) of the Family Law Act on the grounds of non-disclosure of a material matter, or the agreement being void or voidable vitiated by undue influence, or unconscionable conduct.
The wife later filed an amended initiating application joining her lawyer to the proceedings and seeking relief as pleaded in her Statement of Claim.
The husband sought the dismissal of the wife’s application and a declaration that the Financial Agreement was binding.
The legislative requirements
For a Financial Agreement to be found binding, it ordinarily has to satisfy the requirement that before signing the Agreement, both parties were provided with independent legal advice from a legal practitioner about the effect of the agreement on the rights of that party and about the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement.
Each party’s lawyer must sign a statement that the required advice has been provided and provide that statement to the other party. The usual practice is for the lawyers’ statements to be included in the Financial Agreement.
The previous salient cases
It is well established that prima facie, parties should be able to rely on the statements annexed to their Financial Agreement as evidence that the requisite independent legal advice has been provided.
In Hoult & Hoult [2013] FamCAFC 109 the Court held that there is no requirement that the terms of a Financial Agreement have to be just and equitable and that the parties are free to enter into a “bad bargain by way of a Financial Agreement.”
Findings at first instance
The primary judge found that:
- The Financial Agreement was a Financial Agreement as defined in section 90C of the Family Law Act, recording how the property and resources of the parties were to be dealt with.
- The relevant elements of s 90G of the Family Law Act were established, including that, as prescribed by s 90G(1)(b), each party, and specifically the wife, was provided with advice as to the effect of the agreement on her rights and about the advantages and disadvantages, at the time that the advice was provided, to her making the agreement.
- In the event of error as to the finding of compliance with s 90G(1)(b), that it would be unjust and inequitable if the parties’ Financial Agreement was not binding on them, and a declaration to that effect would be made pursuant to s 90G(1B) of the FLA.
- The wife had failed to establish that she entered into the Financial Agreement based on a non-disclosure of a material matter by misrepresentation.
The Appeal
On appeal, the Court held that:
- There are two aspects of the advice to be provided in accordance with section 90G. The first is the ouster of the section 79 jurisdiction of the court by entering the Agreement. Advice on this subject matter was provided by the wife’s lawyer. The second relates to the entitlements or rights pursuant to the Family Law Act. As to the latter, the grounds of appeal were twofold:
- Firstly that the wife’s lawyer did not discuss with the wife, the contributions of the parties to the marriage or any of the future needs factors.
As prescribed by section 90G(1)(b) of the Family Law Act, the wife should have received advice as to what she was giving up on entering the Agreement, instead of merely an unknown or undefined right.
The wife did not receive advice, even in imprecise terms, as to what she might achieve by way of her entitlements or rights pursuant to section 79 of the Family Law Act at the time of entering the Agreement.
Adopting the principles identified in Abrum & Abrum [2013] FamCAFC, this was a ‘requisite integer’ in the circumstances of this case of the advice prescribed by section 90G of the Act.[1] - Secondly, as the wife did not receive advice as to what her entitlements would be by way of property adjustment under section 79 of the Family Law Act, she was unable to compare those possible entitlements with her position under the terms of the Financial Agreement. The reference to the court’s five step process in the wife’s lawyer’s letter of advice was insufficient as it had not been applied to the history of the husband and wife’s respective contributions and future needs and any relevant factors under section 75(2) of the Family Law Act.
Consequently, the wife was unable to “weigh up” or “compare” what her rights would be under s 79 of the Family Law Act versus what she was substituting them for under the Financial Agreement. This meant she could not properly consider the advantages and disadvantages to her of the Financial Agreement versus determination of her property settlement under section 79.
As the requisite advice prescribed under section 90G of the Family Law Act was not given, the first ground of appeal was established.
Notwithstanding this, the Financial Agreement was held to be binding on appeal. It was found to be binding on the basis that it would be unjust and inequitable if the Agreement were not binding on the parties in accordance with section 90G(1A) of the FLA.
The wife’s appeal was dismissed and she was ordered to pay the husband’s costs of $15,000 and the second respondent’s costs of $13,514 within 28 days.
The takeaway
The court has a broad discretion as to whether a declaration is made that a Financial Agreement is binding. The nature and extent of any non-compliance is an important consideration in the exercise of the court’s discretion. When the Court is considering whether to exercise the discretion, regard is to be had to the facts and circumstances surrounding the making and the performance of the Agreement.
The Dragomirov case highlights that when parties are ousting the jurisdiction of the Court by entering into a Financial Agreement, it is important that they receive customised advice as to their particular circumstances and appreciate what they are giving up by entering the financial agreement. Notwithstanding that the advice was found to be insufficient in the Dragomirov case, the Court was able to exercise its discretion and effectively uphold the financial agreement.
Need assistance?
Financial Agreements can be an effective and efficient way of finalising the division of assets between parties and/or extinguishing maintenance claims or providing for maintenance, particularly upon the breakdown of a relationship. However, it is important that parties obtain expert advice from lawyers, tailored to their situation, so they can make an informed decision about whether to enter into the Agreement.
If you are separating and need assistance with negotiating the division of assets and addressing maintenance, contact our experienced family lawyers for assistance by calling 03 8672 5222.
[1] Dragomirov, [55].
