Transcript Cooper Grace Ward PowerPoint Presentation

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Financial Agreements: how to make
sure you sleep at night
• The basics of the Financial Agreement
• Some interesting uses
• Some terrifying cases
• Some suggestions for best practice
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A reminder about why clients ought to be
interested in Financial Agreements
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• Property settlement principles
• What comprises the pool of assets?
• How is the division of assets worked out?
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What is in the matrimonial pool of assets?
• Section 79 of the Family Law Act 1975 empowers the
Family Court to make orders with respect to property
• ‘Property’ is an expanding concept in the eyes of the
court
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What is in the matrimonial pool of assets?
• It is a myth that the following assets are
automatically excluded from the matrimonial
pool:
º
º
º
inheritances or gifts
assets brought in by one spouse
assets held in the names of companies,
partnerships, trusts and third parties or by one
spouse only
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Section 79 Property Settlement – Four Step Process
+ maintenance
1) Value matrimonial assets
2) Compare financial and non-financial contributions
of spouses
3) Assess each spouse’s future needs – Section 75(2)
Family Law Act
4) Is the outcome produced just and equitable?
•
Assess need for spousal maintenance – Sections
72 and 74
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Contributions and size of pool
• No presumption of equality of contribution (although
50/50 division is often the outcome after a long
marriage)
• Extraordinary or entrepreneurial contributions –
perhaps some additional weight where the pool of
assets is very large – matter of fashion
• In the past, the smaller the pool, the more the nonbusiness spouse likely to receive – again social
trends changing here
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FINANCIAL AGREEMENTS
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General overview of financial agreements
• Four types for the marrying kind
º
Financial agreements made prior to
marriage under Section 90B
º
Financial agreements made during a
marriage prior to separation under the
first limb of Section 90C
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General overview of financial agreements
• Financial agreements made during a
marriage but after the parties have
separated under the second limb of Section
90C
• Financial agreements made after divorce
under Section 90D
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FLA de facto agreements
• From March 2009, de facto couples have
been able to enter into financial agreements
under the FLA as follows:
• prior to a relationship — S9OUB;
• during a relationship but prior to separation —
S9OUC; and
• after separation — S9OUD.
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Requirements for a binding financial
agreement post 4/1/10
•
Subject to subsection (1A), in order for a financial
agreement to be binding upon the parties, it must
meet the following criteria under section 90G:
(a) The agreement is signed by all parties;
(b) Before signing the Agreement, each spouse
party was provided with independent legal
advice from a legal practitioner about:
- The effect of the Agreement on the rights of
that party; and
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Section 90G from 4/1/10
- The advantages and disadvantages,
at the time the advice was provided, to
that party of making the Agreement;
and
(c) Before or after signing, each spouse party
was provided with a signed statement by
the legal practitioner stating that the
advice had been given (need not be
annexed);
(ca) A copy of the signed statement must be
given to the other party or their legal
practitioner;
(d) The agreement has not been terminated
or set aside by a court.
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Section 90G(1A)
(1A) A financial agreement is binding on the parties
to the agreement if:
a) the agreement is signed by all parties; and
b) one or more of paragraphs (1)(b), (c) and (ca)
are not satisfied in relation to the agreement;
and
c) a court is satisfied that it would be unjust and
inequitable if the agreement were not binding
on the spouse parties to the agreement
(disregarding any changes in circumstances
from the time the agreement was made); and
d) the court makes an order under subsection
(1B) declaring that the agreement is binding on
the parties to the agreement; and
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Section 90G(1A) cont’d
d) the agreement has not been terminated and
has not been set aside by a court.
(1B) For the purposes of paragraph (1A)(d), a court
may make an order declaring that a financial
agreement is binding on the parties to the
agreement, upon application (the enforcement
application ) by a spouse party seeking to
enforce the agreement.
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Section 90G
(1C) To avoid doubt, section 90KA applies in
relation to the enforcement application.
(2)A court may make such orders for the
enforcement of a financial agreement
that is binding on the parties to the agreement
as it thinks necessary.
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Effect of an Agreement on the rights of parties
• Spouses are unable to apply to the Court for
property settlement or spousal maintenance
contrary to the provisions of the financial
agreement
• Two exceptions to this principle –
º
Centrelink recipients - if one party can establish
that at the time the Agreement came into effect
they were unable to support themselves without
an income-tested pension or benefit, the party can
apply to the Court for a maintenance order
º
Successful application using a ground under
s.90K to set aside a financial agreement
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Setting aside financial agreements
• Grounds upon which financial agreements may be
set aside – Section 90K:
º
the agreement was obtained by fraud including
non-disclosure of a material matter
º
the agreement is void, voidable or
unenforceable
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Grounds for setting aside
º
in the circumstances that have arisen since the
agreement was made it is impracticable for the
agreement or part of the agreement to be carried
out
º
since the making of the agreement, a material
change in circumstances has occurred (being
circumstances relating to the care, welfare and
development of a child of the marriage) as a result
of which the child or the parent who has care and
responsibility for the child will suffer hardship if the
court does not set the agreement aside
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Grounds for setting aside
• in the making of the financial agreement a
party to the agreement engaged in conduct
that was in the circumstances unconscionable
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Grounds for setting aside
• a payment flag is operating on a
superannuation interest covered by the
Agreement (with no reasonable likelihood that
the flag will be terminated by agreement under
the Family Law Act)
• the Agreement covers at least one
superannuation interest that is worth under
$5,000 and is therefore unsplittable for the
purposes of the Family Law Act
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General issues to be conscious of regarding
Agreements
• full and frank disclosure requirement – be very careful
• continue vigilance with the versions of the agreement,
especially as that pertains to disclosure Fevia and
Carmel-Fevia: wife’s version of the agreement signed
shortly before wedding did not have the schedule of
business assets attached – no agreement found to
exist
• can be limited to 1 asset or a category of asset or
cover the field
• can protect a client’s interest in a trust, company or
3rd party investment
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General issues to be conscious of regarding
Agreements: bankruptcy
• Transactions completed under a Financial Agreement
are protected from the Trustee in Bankruptcy, subject
to anti-avoidance measures
• An Agreement can be set aside if it was entered into
by either party to defraud or defeat a creditor (or with
reckless disregard of the interests of a creditor)
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Practical advantages of Financial
Agreements
• Can be used to protect/quarantine all or some of the
assets from the other spouse – especially initial
contributions made at the commencement of the
relationship
• Privacy and can be speedier than court for separated
couples
• Offer asset protection against spouses, third parties,
creditors (subject to anti-avoidance provisions)
• Agreements confer stamp duty and CGT relief,
subject to certain exceptions, for separated couples
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Most common use
• Estate planning and asset protection for:
• High net worth clients (perhaps only when compared
with their spouse)
º
Those not marrying for the first time
º
Clients with children/obligations from a previous
relationship
º
Parties in family or intergenerational enterprises
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What Agreements can contain
• Sliding scales or formulas of property and
maintenance entitlements based on length of
marriage, number of children etc
• Pet maintenance payments following separation
• Champagne, white wine and red wine division
• Sunset clauses with provision for regular reviews
• Confidentiality clauses
• Interlocking provisions with collateral loan
agreements
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Disadvantages – depending on whom you are
acting for
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• Financial agreements cannot be varied or updated –
they must be terminated and a fresh agreement
executed
• May not reflect the entitlements the parties would be
awarded by a Court
• Section 90B and 90C (limb 1) agreements can cause
difficulty in the relationship
• Problematic to alter decisions retrospectively –
against whom is most protection sought?
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One important disadvantage
• The poor lawyers
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The changing nature of ‘binding’
•
•
J and J 2006 Fam CA 442 old wording of certificate
of independent legal advice used and not replicated
in the body of agreement
Under the old version of Section 9OG, a Financial
Agreement could only be binding if the original
Agreement was given to one of the parties and a
copy given to the other. Fevia and Carmel-Fevia
2009 Fam CA 1101 Agreement found not to be
binding beacause a copy of the Agreement was not
provided within a reasonable time. Wife only
became aware of the existence of the business
asset schedule attached to the husband’s copy
when he instituted court proceedings.
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Changing nature of ‘binding’
• Black and Black 2008 FLC 93-357 – annexed
certificates but not the body of agreement
mirrored Section 90G - a strict compliance test
with respect to technical requirements for binding
• Gardiner & Baker 2009 FMCA fam 1029 –
reference to ‘disadvantages’ did not appear in the
recitals about the advice given
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Post 4/1/10
• An agreement can still be binding even if the new
Section 90G requirements not met if the court
remains satisfied that it would be unjust and
inequitable if the agreement were not binding –
S90G(1)(A)
• Changes in circumstances since the Agreement
executed dealt with under Section 90K not by a
finding under 1A.
• For example the advice need not necessarily be
contained in the Agreement or certified in an
annexure to the Agreement.
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Who may sign the certificate?
• In Ruane and Bachmann-Ruane & Anor,
the Financial Agreement signed by the
parties was held not to be binding due to
one of the certificates of legal advice having
been signed by an English lawyer. Although
this case was determined prior to the
January 2010 amendments, do not assume
any change
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Effect of changes
• Retrospective effect for all agreements
signed after 27/12/00
• Note however that that pre 2004
agreements required parties to be given
advice about 2 additional matters (prudence
and the fair and reasonable test in light of
reasonably foreseeable circumstances)
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What to ensure you have covered now
technical requirements less fatal
•
The Financial Agreement must be "expressed to be
made" under the relevant Section: Ruane and
BachmannRuane & Anor 2009 Fam CA 1101
•
If it is not addressed in the Agreement, jurisdiction is
not ousted. Kostres and Kostres 2009 Fam CAFC
222 (trust assets)
•
Try to reflect the mutual intentions of the parties –
history described in the recitals. Kostres Parties
wrongly believed the husband was still bankrupt
and put all the assets in the wife’s name/her trust.
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What to ensure you have covered now
technical requirements less fatal cont’d
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• On separation, wife sought to retain all of them
although husband had contributed
borrowings/payments. Agreement found too
ambiguous and remitted for rehearing.
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Content of the agreement
•
If attempting to exclude spousal maintenance
do not write "nil" because it might be void:
S90E "A provision of a financial agreement that
relates to the maintenance of a spouse party to
the agreement or a child or children is void
unless the provision specifies:
a) the party, or the child or children, for whose
maintenance provision it is made; and
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Spousal maintenance provisions
b) the amount provided for, or the value of the
portion of the relevant property attributable to,
the maintenance of the party, or of the child or
each child, as the case may be.“
Adamidis and Adamidis 2009 FMCA fam 1104
-
No Section 90E provision excluding spousal
maintenance in the body of the agreement
only in a recital, which was severed and the
husband permitted to apply for spousal
support
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Substantive provisions
• Definitions of separate, joint property etc
• How determined – title, contributions, record
keeping?
• Clarity as to structures, inheritances, tax losses
• Substitution clauses
• Occupation of home at separation clauses
• Separation declarations – annexed or protocol
included
• Sale, valuation, transfer and retention clauses
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Separation declarations
S9ODA to the Act provides that a Binding Financial
Agreement will be "of no force or effect unless a
separation declaration is made".
The declaration:
º may be included in the Financial Agreement to
which it relates.
º must be signed by at least one of the parties.
º must state that:
- The parties have separated and are living
- separately and apart at the time that the
declaration was made.
- In the opinion of the party (parties) making the
declaration, there is no reasonable likelihood of
cohabitation being resumed.
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Superannuation agreement provisions
• Although not required specifically give the trustee
procedural fairness (perhaps whole agreement?)
• Beware amicable parties who have reached an
Agreement prior to 12 months of marriage – of the
balance is in excess of "the low rate cap amount" for
the income year – split not permitted until 12 months
separation
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Letter of advice
Should address:-
•
the operation of the Agreement, i.e.. what
is proposed
•
the advantages of signing the Agreement;
º
the disadvantages of signing the Agreement;
º
the effect of that Agreement upon the client's
rights (including S90K and S90E); and
º
any proposed amendments to the Agreement
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De Facto Agreements
• S9OUJ mirrors new S9OG and has same
retrospective effect.
• The Agreements must be made between parties
who are ordinarily resident in participating
jurisdictions [S9OUA] excluding WA and SA.
• The separation declaration is required if any
Financial Agreement is to be of force or effect.
The declaration must also state in addition to the
matters outlined in S9ODA, that "the parties lived
in a defacto relationship" under S9OUF.
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De Facto Agreements cont’d
•
Agreements made under, for instance, Part
19 of the Property Law Act (Qld) prior to the
1 March 2009, will be deemed to be
Financial Agreements provided that:
-
The parties did not separate prior to 1 March
2009;
The stated agreement in effect complies with
the relevant Family Law Act provisions eg
provision of statement of legal advice, etc.
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