Binding Financial Agreements (BFAs), commonly known as prenuptial agreements, are valuable legal tools that protect assets and establish financial arrangements between couples. However, these complex documents require meticulous preparation and adherence to strict legal requirements to be enforceable. When a lawyer makes a mistake in the BFA process, it can have serious consequences for both parties involved. Let’s explore what happens in such situations and how these issues can be addressed in the Australian legal context.
What Happens When a Lawyer Makes a Mistake in a BFA
When a lawyer makes an error during the creation, execution, or certification of a Binding Financial Agreement, the implications can be far-reaching. The Family Law Act 1975 (Cth) sets out specific requirements for BFAs, and failure to meet these requirements can render the agreement unenforceable or void.
The most immediate consequence of a lawyer’s mistake is that the court may set aside the BFA. Under section 90K of the Family Law Act, a court can set aside a BFA if it was obtained by fraud, is void or unenforceable, or if circumstances have arisen since making the agreement that make it impracticable to carry out. A lawyer’s error could potentially fall under several of these grounds.
For instance, in the landmark case of Thorne v Kennedy [2017] HCA 49, the High Court of Australia set aside two financial agreements partly because the legal advice provided to one party was inadequate. While this case involved issues of undue influence and unconscionable conduct, it highlights how crucial proper legal advice is to the validity of these agreements.
Types of Legal Mistakes in BFAs
Lawyers can make various types of mistakes when handling BFAs, each with different implications. Drafting errors might include omitting essential clauses, using ambiguous language, or failing to properly identify and include all relevant assets. Such errors can lead to uncertainty about the agreement’s terms or fail to protect assets as intended.
Procedural errors are equally problematic. These might include failing to ensure both parties receive independent legal advice, not properly explaining the effect of the agreement on the rights of the parties, or not ensuring the agreement meets all technical requirements under the Family Law Act. In the case of Black & Black [2008] FamCAFC 7, the Full Court of the Family Court set aside a BFA because one party had not received adequate legal advice about the advantages and disadvantages of entering into the agreement.
Certification errors occur when a lawyer incorrectly certifies that they have provided advice about the agreement. Section 90G of the Family Law Act requires that each party receive independent legal advice about the effect of the agreement on their rights and the advantages and disadvantages of making the agreement. If a lawyer fails to provide this advice but certifies that they have, this could constitute professional misconduct and invalidate the BFA.
Legal Consequences for the BFA
When a lawyer’s mistake affects a BFA’s validity, several outcomes are possible. The court may set aside the entire agreement, leaving the parties in the same position as if the BFA had never existed. This means that in the event of separation, financial matters would be determined according to the provisions of the Family Law Act rather than the terms of the BFA.
In some cases, the court might sever problematic clauses while preserving the rest of the agreement. This approach was taken in Senior & Anderson [2011] FamCAFC 129, where the court determined that certain provisions of a financial agreement were void but did not invalidate the entire agreement.
If the mistake relates to procedural requirements rather than the substance of the agreement, there may be options to rectify the error. The Family Law Act includes provisions under section 90G(1A) that allow a court to declare a BFA binding despite technical defects if it is satisfied that it would be unjust and inequitable not to do so.
Liability and Recourse for Lawyer Mistakes
When a lawyer’s error results in an invalid BFA or other adverse consequences, the affected parties may have recourse through professional negligence claims. Legal practitioners owe their clients a duty of care to provide services with reasonable skill and competence. A breach of this duty that causes loss or damage can give rise to a claim for professional negligence.
To establish professional negligence, a client would need to demonstrate that the lawyer failed to meet the standard of care expected of a reasonably competent lawyer in the same circumstances. This might involve showing that the lawyer did not adequately explain the agreement, failed to identify significant assets, or did not comply with the statutory requirements for BFAs.
The case of Pease & Pease [2005] FamCA 504 illustrates this principle. In this case, the court found that the lawyers had failed to properly advise their clients about the effects of their financial agreement, contributing to the agreement being set aside.
Making a Complaint Against a Lawyer
If you believe your lawyer has made a significant mistake in handling your BFA, you have several options for making a complaint. Each Australian state and territory has a legal services commissioner or similar body that handles complaints about lawyers. For example, in New South Wales, complaints can be made to the Office of the Legal Services Commissioner, while in Victoria, the Victorian Legal Services Board and Commissioner fulfils this role.
When making a complaint, you should provide clear details of what you believe the lawyer did wrong and how it has affected you. The regulatory body will investigate the complaint and may take disciplinary action if they find evidence of professional misconduct or unsatisfactory professional conduct.
In addition to regulatory complaints, you may also be able to resolve the issue through the lawyer’s internal complaint handling process or through the Australian Financial Complaints Authority if the issue relates to fees or costs.
Professional Indemnity Insurance and Compensation
Lawyers in Australia are required to hold professional indemnity insurance, which can provide compensation to clients who suffer loss due to a lawyer’s negligence. If a lawyer’s mistake with your BFA has caused you financial loss, you may be able to claim compensation through their insurance.
The amount of compensation will depend on the extent of the loss suffered. For example, if a BFA is set aside due to a lawyer’s error and this results in a less favourable property settlement for one party, the compensation might reflect the difference between what was received and what would have been received had the BFA been valid.
It’s important to note that claims against lawyers can be complex and usually require expert legal advice. There are also time limits for bringing negligence claims, typically six years from the date the negligence occurred, although this can vary depending on when the damage became apparent.
Preventative Measures and Best Practices
To minimise the risk of lawyer mistakes affecting your BFA, there are several preventative measures you can take. First, choose a lawyer with specific experience in family law and BFAs. A specialist in this area will be more familiar with the requirements and potential pitfalls.
It’s also advisable to be completely transparent with your lawyer about your financial situation and objectives. Withholding information can make it difficult for your lawyer to draft an appropriate agreement that covers all necessary aspects.
Additionally, ensure that both parties have sufficient time to consider the agreement and receive independent legal advice. Rushing the process increases the risk of errors and can also provide grounds for challenging the agreement later on the basis of duress or undue influence.
The Importance of Independent Legal Advice
One of the most critical requirements for a valid BFA is that both parties receive independent legal advice. This means each person must consult with their own lawyer who has no connection to the other party. The lawyer must explain the effect of the agreement on the person’s rights and the advantages and disadvantages of entering into it.
Independent legal advice serves multiple purposes. It ensures that both parties understand what they’re agreeing to, provides evidence that the agreement was entered into voluntarily, and helps protect the agreement from being set aside later. It also reduces the risk of a lawyer’s mistake affecting the validity of the BFA, as there are two legal professionals reviewing the agreement.
The case of Wallace & Stelzer [2013] FamCAFC 199 highlights the importance of proper independent advice. In this case, the court set aside a BFA partly because one party had not received adequate legal advice about the effect of the agreement.
Regular Reviews and Updates
Even the most carefully drafted BFA may need to be reviewed and updated over time. Significant life events such as the birth of children, substantial inheritance, or major career changes can affect the fairness and relevance of a BFA.
Regular reviews with your lawyer can help ensure that your BFA remains valid and appropriate for your circumstances. If changes are needed, these should be made formally through a termination agreement and a new BFA, or through a variation agreement that complies with the same requirements as the original agreement.
Failure to update a BFA when circumstances change significantly could potentially provide grounds for setting aside the agreement under section 90K(1)(d) of the Family Law Act, which allows for termination if circumstances have arisen since making the agreement that make it impracticable to carry out.
Need Help With Your Binding Financial Agreement?
Navigating the complexities of Binding Financial Agreements requires careful attention to detail and thorough legal knowledge. When mistakes occur, they can have serious implications for the validity of your agreement and your financial future.
As a law firm in Australia, we can help you with preparing, reviewing, or addressing issues with your Binding Financial Agreement. Our approach focuses on thorough preparation and clear communication to minimise the risk of errors that could compromise your agreement. Contact my law firm team today by calling 1300 529 888.