AustLII Home | Databases | WorldLII | Search | Feedback

Alternative Law Journal

Alternative Law Journals (AltLJ)
You are here:  AustLII >> Databases >> Alternative Law Journal >> 2002 >> [2002] AltLawJl 26

Database Search | Name Search | Recent Articles | Noteup | LawCite | Author Info | Download | Help

Monro, Rosslyn --- "Family agreements: all with the best of intentions" [2002] AltLawJl 26; (2002) 27(2) Alternative Law Journal 68

Family agreements: All with the best of intentions

Rosslyn Monro[*]

Examples of family agreement breakdowns from a Queensland community legal centre.

It is a well-established principle that family agreements are not usually contractual in character or intended to create legal relations.[1] The rationale for this is that people in domestic situations frequently make agreements with each other but, due to the minor nature of the agreements, do not intend them to have legal consequences notwithstanding the presence of consideration or mutual promises. This type of arrangement is evident in accommodation agreements older people make with their relatives. When the parties first form the agreement there is often no stated intention to be legally bound. However, when the accommodation arrangement breaks down into unhappy or abusive situations, the older person may be required to convince the court there was an intention to create legal relations in order to obtain justice.

Mrs Jones, a 74-year-old woman was living with her husband, Frank, in Rockhampton. Up until Frank’s death, Mrs Jones and Frank owned their home as joint tenants. Frank’s death caused Mrs Jones’s health to decline and she entered into a period of depression.

Three months after Frank’s death, Mrs Jones’s daughter, Susan, suggested to her mother that she move to Brisbane, 700 kilometres away. They discussed Mrs Jones selling her home in Rockhampton and using the money to convert the two-car garage at Susan’s home in Brisbane into a ‘granny flat’. Susan is Mrs Jones’s only child and is married to Bill with two school-aged children. Susan and Bill made promises to Mrs Jones that she would have a home in the ‘granny flat’ for the rest of her life. Mrs Jones is encouraged to make the move as Susan will be able to keep an eye on her mother’s health, and Mrs Jones will be able to spend more time with her grandchildren.

Mrs Jones sells her house and uses most of the sale proceeds to convert Susan’s garage into a small two bedroom flat. Mrs Jones is not presented with any paper work about the title to Susan’s house. Whenever Mrs Jones asks Bill about the ‘paper work’ for the granny flat, she is told that, ‘this is just an arrangement between family, so we don’t need to go to all that expense’. Mrs Jones is not completely satisfied with that answer, but does not want to create any tension, and lets the matter rest. Mrs Jones pays a proportion of the local authority rates, and the utilities. She also purchases her own groceries.

Two years pass and Mrs Jones is starting to reconsider her decision. She is feeling quite isolated, as most of her friends are still living in Rockhampton. Increasingly Mrs Jones has been asked by Susan to look after the children after school, as Susan’s hours of work increase. Mrs Jones finds it difficult to refuse Susan’s request for childcare.

Mrs Jones is also concerned that Susan and Bill’s marriage will not survive, and she suspects that there is domestic violence occurring within the relationship. Bill has been in and out of work and his temper is very short. Quite often Susan will be upset when she visits her mother. Bill has become increasingly intolerant of Mrs Jones’s presence, so she tries to keep a low profile in order to reduce conflict. Mrs Jones has also been noticing that cash has been missing from time to time, and suspects it may be her grandson that is stealing it.

Mrs Jones wants to leave. She has very little money saved, and when she has asked Bill about the investment she made in the house she is told that ‘everything in the house is mine, including the flat’. Mrs Jones also feels that remaining in the flat may provide protection for her daughter and her grandchildren when Bill becomes violent.

Mrs Jones seeks legal advice from Caxton Legal Centre’s Legal Outreach for Older People. The advice she is given is as follows:

Should Susan and Bill separate, the Family Court views the house as matrimonial property, including Mrs Jones’s investment. If Bill and Susan refuse to acknowledge the contribution to the matrimonial property, Mrs Jones’s only recourse is to intervene in property proceedings in the Family Court.

Should Mrs Jones wish to leave the granny flat whilst Bill and Susan are still together, she may need to commence court proceedings on the grounds of a constructive trust, contractual estoppel or unjust enrichment.

The only mechanism she has to protect her daughter and grandchildren from violence is to call the police.

Mrs Jones is not encouraged by this advice, as she cannot afford to take legal proceedings, and in any event, she feels strongly that family members should be able to work things out without resorting to court action. Mrs Jones is afraid to call the police when Bill is violent as it will only escalate the conflict and get her involved in something where she doesn’t feel it is her business to interfere. Mrs Jones feels that doing anything at the moment will only add to her daughter’s problems. Mrs Jones’s health continues to decline as a result of the stress she is experiencing.

The scenario outlined in italics above is one example of the types of arrangements older people may enter into with their relatives. However, this scenario may be played out in a number of different ways. The stories of older clients assisted by the Legal Outreach for Older People (LOFOP) program at Caxton Legal Centre Inc all have a common thread. The social and legal circumstances under which older people form an agreement to live with family bears heavily on whether an older person retrieves their investment in property on termination of the agreement. Due to their private nature, the prevalence of the agreements is unknown. The LOFOP program is exposed to some of the arrangements that break down, but only where the older person is in a position to obtain legal advice.

For the purposes of this article I refer to these arrangements as informal family accommodation agreements, notwithstanding that this label raises the inherent paradoxes of the arrangements between older people and their families.[2] One of the purposes of this article is to discuss the formation and the nature of informal family accommodation agreements, and examine the approach of the courts in resolving disputes arising from them. The article then examines the reasons why older people are reluctant to engage with the legal system both at the time of forming, and when seeking to enforce, the agreement. Finally the role and obligations of a lawyer advising the parties will be examined. While the case law in this area provides an informative view of informal family accommodation agreements, many of the observations in this article are based on the experiences of the LOFOP program where, at a practice level, case patterns have emerged.

Formation of the agreement

An older person may choose to live with their extended family for a number of different reasons. Some of the circumstances that may precipitate the older person’s decision to live with family may include the death of a spouse, a decline in health, a desire to be closer to grandchildren, a need for care outside institutions, or a request by family to assist with childcare. It is not unusual for an older person to make this type of decision when experiencing a crisis, where a hasty change of accommodation is perceived as being necessary. The timing of the decision may greatly affect the older person’s ability to resist family pressure and identify all the potential pitfalls of the arrangement. This type of decision-making process can lead to an agreement that is characterised by informality and results in a transfer of an older person’s financial resources to a family member during their lifetime.

Informal family accommodation agreements are usually oral rather than written. It is the experience of the LOFOP program that many of these agreements occur in Anglo-Australian households where there is little experience of extended family living, and where ageing is negatively valued. Families may also take a paternal attitude towards the older person, who may be perceived as not being capable of making their own decisions. In this context, families avoid the practical discussions about living with an older person and focus on the nature of the older person’s investment in the property. A failure to fully discuss the practical terms of the agreement, let alone to put the agreement in writing, leads to ambiguous arrangements and to assumptions that may not be shared by both parties. The expense of seeking legal assistance or the inevitability of the older person’s financial resources passing to their relatives on their death provides further justifications for the informality.

Informal family accommodation agreements usually result in a transfer of the older person’s financial resources, during the lifetime of the older person, to a younger relative in consideration for a promise to provide accommodation, and possibly other care assistance. The transfer of resources may be effected in a number of ways. An older person may make a contribution to their relative’s mortgage, or the funds might be used to alter the relative’s property by, for example, building a ‘granny flat’.. In situations where the relatives move in with the older person, the older person may transfer their property into the names of the relatives or purchase a new property in the name of the relative. In some circumstances, the older person may be providing a second consideration by way of their unpaid labour, such as caring for grandchildren.

A failure to consider the long-term consequences of the agreement at the time of forming it often leads to disputes and the breakdown of the relationship between the parties. The events which can lead to the development of disputes include changes in the health of the older person which require the relative to provide a greater level of care, the desire of the relative to move homes, the breakdown of the relative’s marriage, or the isolation of the older person from the communities in which they were previously living. When the courts are faced with resolving disputes, the approach often taken is to re-construct the formation of the agreement, in order to ascertain the real intentions of the parties.

Judicial reconstruction of agreements

The Family Court and some Supreme Courts have considered informal family accommodation agreements. The cases indicate that the courts have been sympathetic to the position of the older person. Courts have arrived at favourable outcomes, circumventing the general principle about family agreements by taking a retrospective view of the intentions of the parties. By examining the details of the formation, and hence the parties’ intentions, the courts have applied equitable principles to redress the financial inequalities between the parties, without specifically addressing the social inequalities.

In Mrs Jones’s situation, as an unsecured third party creditor, she may apply to the Family Court to intervene in property proceedings of the parties to the marriage, pursuant to s.92 of the Family Law Act 1975.. This provision was successfully used by an older person in Wade-Ferrell v Wade Ferrell v Read [2001] FamCA 138, where the husband’s mother made a direct contribution of $13,756 to improve a granny flat that was added to the matrimonial home, which she occupied. The Full Court of the Family Court upheld the first instance decision that the original intention of the older woman was to make a loan to the husband and the wife, not a gift. The Family Law Act intervener provisions are not without risks. The court can still elect not to take into account an unsecured liability if the liability is vague, uncertain or unlikely to be enforced.[3] The intervener is also at risk of an adverse costs order.

The Family Court may also recognise the older person’s rights in the absence of an application to intervene. In Allen v Allen EA25 of 1994, the husband’s mother, Mrs Allen Senior, sold her home in New Zealand, and moved in with her son and his wife in Australia. Mrs Allen Senior contributed in excess of $67,000 to the construction and alteration of a granny flat in which she lived for 19 months. The Full Court of the Family Court noted that the agreement was not documented, and that conversations about the granny flat were imprecise. Mrs Allen Senior’s health deteriorated, and she chose to move back to New Zealand. Subsequently, the son’s marriage broke down. Despite the absence of an application to intervene in the property proceedings, Baker and Barry, JJ found that Mrs Allen Senior’s affidavit evidence, a solicitor’s file note, evidence of a family meeting, and Mrs Allen Senior’s execution of an acknowledgement of debt were sufficient for the court to recognise her entitlement to an equitable remedy. The court formed the view that the original intention of the parties was that Mrs Allen Snr would live rent-free in the granny flat for the rest of her life, and this agreement was defeated by the marriage breakdown.

However, the dissenting opinion of Kay, J in Allen’s case is a caution against expecting the Family Court to recognise the older client’s rights in the absence of an application to intervene, and a reminder that the general principle about family agreements still has currency. Justice Kay found that Mrs Allen Senior’s expenditure was a windfall shared equally between the husband and wife. This conclusion was reached on the combined basis of Mrs Allen Senior failing to apply as an intervener, her voluntary choice to return to New Zealand, the lack of evidence indicating the investment increased the value of the matrimonial property, and that the investment was not to benefit either party, but to provide accommodation for herself.

In other jurisdictions, courts have also looked at the common intention between the parties at the time of forming the agreement, in order to arrive at an equitable remedy in favour of the older person. The Equity Division of the New South Wales Supreme Court found a constructive trust in the case of Morris v Morris [1982] 1 NSWLR 61. On the death of his wife, a 69-year-old man sold the matrimonial home unit and, at the invitation of his son, moved in with the son and his family. The sale proceeds were applied to the construction of a second storey to the son’s house. The relationship between the father and son was described as close and harmonious. Six months after Mr Morris Senior moved in with his son, the son’s marriage broke down, with the result of Mr Morris Senior moving out of the house. McLelland J held that it would be unconscionable for the son to retain the benefit of his father’s investment. Mr Morris Senior’s expectation at the time of making the investment was that that he would live in the house indefinitely.

The case of Callaghan v Callaghan [1995] SASC 5064 involved a 77-year-old man who, on the death of his first wife, purchased a house in which he was to live with his daughter and granddaughter. The title was held in the daughter’s name, for the purpose of reducing stamp duty liability. The father discussed placing a caveat on the property, but this did not eventuate. The father also had discussions with the bank manager about the risk of buying the property in the name of his daughter. The father indicated to the bank manager that his daughter, being family, would not let him down. The father later formed a new relationship with his future second wife, which caused friction in the household. When the father went away on a holiday the daughter decided to sell the house. Justice Perry of the South Australian Supreme Court held that there was an intention by the father to gift the house to his daughter, however there was a reservation of a right to live in the house for the rest of his life that could be attributed a value. The daughter was prevented from taking the benefit without acknowledging the reserved interest.

There are risks associated with an application to the court requesting a contract remedy. For example, in Gors v Henderson [1998] WASC 273, Steytler J in the Western Australian Supreme Court noted that an arrangement between a 91-year- old woman and her two step-daughters was not viewed as an enforceable agreement as there was no intention to enter a legally enforceable contract. The absence of writing was fatal to an agreement to transfer land to the step-daughters on the death of the older woman. A claim for restitution on the grounds of unjust enrichment, where issues of inequity and unconscionability are more relevant than the formality of the agreement, may have been a more successful approach.

The cases illustrate that the legal system is not responsive to the whole social context in which these agreements are formed, but to the particular issue of financial inequality. The courts apply the common law and applicable statutes to find a remedy in the particular factual instance, without addressing the key equitable issue, namely the power differential between the parties to the agreement. The factors that influenced the forming of the agreement in the first place are not part of the judicial considerations. Without the courts going behind the agreement to the social context, the law views these agreements as ‘just family arrangements’, not as a social phenomenon that is intrinsic to the accommodation needs of older people.

Factors which prevent an older person engaging in the legal system

Notwithstanding the available judicial mechanisms, older people are reluctant to engage in the legal system for a number of socio-cultural reasons. As borne out in some of the cases, older people prefer not to involve the law when first forming the agreement, due to a firmly held conviction that they can trust family members to look after their best interests. The older person’s trust may be confirmed by assurances made by family members or by the view that the parent–child relationship is reciprocal. The cost of legal assistance and the inevitability of the transfer of their estate to the relatives are also reasons articulated by some older persons. Notwithstanding the reluctance of older people to engage with the law when entering the agreement, there are further socio-cultural factors that prevent older people using the law to enforce agreements, formal or informal.

Older people are reluctant to enforce agreements against family as they believe that family relationships should be preserved at any cost. The older person may feel a sense of powerlessness against a younger person, due to a relationship of dependency. Despite the poor or abusive quality of the relationship, family may still provide valued support to an older person. An example from the LOFOP program was an instance where a solicitor drafted an encumbrance to deal with an older person’s investment in land owned by the relative. The older person found it difficult to ask her relatives for the repayments set out in the encumbrance that were ten years in arrears. The client did not receive the payments of the ‘loan’, and did not benefit from the increase in property value over a period of 14 years. The key reason articulated by the older person for not pursuing the matter was her fear of a change in the relationship between herself and her daughter.

Another barrier to enforcing the agreement is financial cost. On the breakdown of the agreement the expense of finding alternative accommodation has financial priority over trying to recoup the investment. The investment made under the agreement may be the last major financial resource available to an older person. Further financial resources may not be available to pay for legal assistance and to pursue litigation.

Legal action can also take a physical toll on an older person’s health. The prospect of legal action that can take years to finalise, with no guarantees at the end of the day, is a risk many older people are not willing to take. Conflict with family also takes an emotional toll. A sense of shame about the breakdown of family relationships, and the older person’s inability to trust their family, are feelings that the older person would rather not divulge in a public manner.

A formal agreement may not overcome the socio-cultural factors that prevent older people enforcing the agreement. However, the exercise of formulating a written agreement between the older person and the relative may provide an opportunity for the parties to consider the practical long-term details, whereby the pitfalls become self-evident. The experience in the United States is that older people are making formal care contracts when they transfer property to family members, in order to satisfy eligibility requirements under the Medicaid rules.[4] The notion of ‘care agreements’ is beginning to have some currency in the Australian context, particularly when a lawyer who may have a particular interest in elder law advises the older person. (See the article by Brian Herd on family agreements in this journal on p.68.) While care agreements satisfactorily rebut the general principle about family agreements, it is not a one-size fits all solution. A care agreement cannot comprehensively address the power differential between the parties, if the ultimate dispute resolution mechanism is recourse to the court system. The approach also implies that lawyers, who draft the agreement, are best placed to understand the care requirements of the older person, both at the time of the agreement, and in the future.

Outside of written agreements between the parties, there are still legal measures that enable an older person to extract themselves and their finances from an agreement, without necessarily losing the family relationship. These measures include registering investments on the title of the property as owner or mortgagee or entering residential tenancy agreements. Legal advice is most effective as a preventive strategy, prior to the parties starting the arrangement. The challenge of programs such as LOFOP is to raise a sufficient amount of awareness of the issues in order for older people to recognise the need to access legal advice before making an agreement with their family.

Lawyerly obligations

In order to provide effective preventive legal advice, a lawyer must recognise the dynamics of such situations. There is a temptation for a lawyer to merely carry out the instructions of a fee-paying client, who may or may not be the older person, without looking behind the transaction to the social dynamics. The true nature of the agreement may be ascertained by questioning the parties as to the circumstances of the agreement. Questions that the lawyer might ask the older person include:

‘What happens if your son or daughter’s marriage breaks up?’

‘Will you still be able to see your friends/have a pet/ go to the same church?’

‘What will happen if you get sick and need nursing home care?’

‘Do you think it is a good time to move home so soon after losing your husband/wife?’

Questions that the lawyer might ask the relatives include:

‘Will modifying the house with ramps and rails be a problem, should the health of your mother/father deteriorate?’

‘Will you be able to go on holidays or obtain respite, should your mother/father be ill?’

‘How will your children cope with living with their grandparent?’

Questions asked by the lawyer may facilitate more discussion between the parties, in order to generate greater understanding of each other needs.

The lawyer must also ask himself or herself, ‘Who is my client?’ There is a clear conflict of interest for the lawyer to advise both the older person, and the older person’s relatives. This may involve a policy change for lawyers who have acted as the ‘family solicitor’ and have been instructed to do the paperwork for a transaction between family members. This type of agreement should not be viewed differently from any other transaction. The parties need to seek their own independent legal advice. The parties must also be advised of the consequences of failing to put any agreement in relation to sale of land in writing, pursuant to s.11 of the Property Law Act 1974 (Qld) or the relevant equivalent.

Lawyers also need to recognise their professional limitations in providing advice in these situations. The decisions involved in these agreements are not purely legal. It is important for lawyers not to assume that family are the most appropriate support to an older person who requires care. When the parties discuss care arrangements for the older person, social and medical decision-making is also required. The lawyer may be in a position to facilitate an interdisciplinary network of professional advisers, which may include a social worker, financial adviser, general practitioner, or community nurse. Lawyers need to be sure of their professional boundaries but also be able to identify issues outside of their own field in order to refer appropriately.

Conclusion

While the extent of informal family accommodation agreements is not fully known, experience and cases indicate that the agreements are often informal, and this attribute has ramifications for the longevity of the agreement. While courts have often been sympathetic in assisting older people when the agreement breaks down, very few older people make it to the door of the court. Mrs Jones’s avoidance of family conflict is common. Preventive inter-disciplinary information and advice is therefore critical. A responsible lawyer will look beyond the transaction to the social context, in order to prompt the parties to go beyond their vague and informal promises. The domestic contract principle was developed in the early part of the 20th century. This principle fails to have relevance now, as it does not adequately address the inherent power differential between parties to domestic agreements such as informal family accommodation agreements.


[*] Rosslyn Monro is a lawyer at Caxton Legal Centre Inc.The author acknowledges the invaluable assistance of her colleague, Catherine Hunt, in preparing this article.

email: rosslyn_monro@fcl.fl.asn.au

© 2002 Rosslyn Monro

[1] Balfour v Balfour [1919] 2 KB 571.

[2] The phrase ‘family agreement’ was first used to describe arrangements of this kind by the Canadian author, Margaret Hall. See Hall, M., ‘Project on Legal Issues Affecting Elderly People: The Independent Care Agreement (A Canadian Perspective)’, paper presented at a symposium of the National Academy of Elder Law Attorneys, April 2001.

[3] Biltoft and Biltoft [1995] FamCA 45; (1995) FLC 92-614.

[4] Hall, M., above, ref 1, p.2.


AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.austlii.edu.au/au/journals/AltLawJl/2002/26.html