In the September 2010 issue of LAWPRO Magazine, we asked our claims counsel about what they feel are the biggest malpractice hazards in each area of law based on the claims files they work on every day. Here is an excerpt from that article that discusses the hazards of family law. Click here to read the full article “Practice Pitfalls”.
When a starry-eyed couple is about to get married, no one likes to think about the possibility of divorce. However, in some cases one side (e.g., the husband – or the husband’s family) has assets it wants to protect in the event of a marriage breakdown, so a marriage contract is signed, and the wife agrees to exclude certain property from any equalization calculation upon breakdown of the marriage. But the couple will live happily ever after, so why worry about understanding the fine print?
If the marriage ends, the spouse who signed away rights to those assets might have serious second thoughts along any of the following lines: “I didn’t understand what I was signing.” “All assets weren’t properly disclosed.” “The lawyer did not advise me properly.”
“If the agreement blows apart, the person wanting to be protected sues the lawyer saying ‘you didn’t give me an airtight agreement,’” says Cynthia Miller, LAWPRO Unit Director & Counsel (Litigation), “Or the other party will say to their lawyer ‘you didn’t make sure that I had proper disclosure of the excluded assets and I didn’t realize what I was giving up.’ They usually claim they wouldn’t have signed the agreement if they had understood what they were agreeing to sign away. If the contract is upheld, they may look to their lawyer for the value of the assets (or the growth on those assets) that they claim they would not have excluded if they had received proper disclosure. On the other hand, if the contract is set aside, the party seeking the protection of the contract may look to his or her lawyer for indemnification for any additional amounts that have to be paid to the spouse by way of equalization.”
Such claims can be expensive, considering both parties’ costs to litigate as well as, potentially, the value of the excluded asset(s). Conflict of interest could also be alleged, if the lawyer is advising both spouses rather than insisting that one get independent legal advice.
LAWPRO continues to see these claims, despite a court ruling (LeVan v. LeVan, 2008 ONCA 388) that clarified what needs to be disclosed when creating a marriage contract. Lawyers need to make sure clients are making an informed decision about what they are agreeing to exclude. Too often lawyers don’t understand the disclosure obligations or just rely on the word of their clients who say, “We’ve been living together for years, and of course my fiancé knows exactly what I have.” Lawyers should document the fact that they have overseen what was disclosed to the other partner. For instance, a spouse may own “1000 shares in John Smith Corporation,” but what does that really mean? Should an accountant or business valuator be reviewing the contract? That costs money, and often the client just wants to get on with things and not pay more than they think is necessary.
The lawyer’s best protection: Document exactly what the client was advised to do, and what advice the client declined to follow despite being advised of the potential risks.
Pauline Sheps, LAWPRO Claims Counsel Specialist, advises insureds that if the lawyer has done all of the above it makes it easier for LAWPRO to defend a claim. “Reporting letters are extraordinarily important,” she says “We know we have to do them in real estate transactions. We should do them in family matters, too.” Having a standard template or checklist for reviewing agreements can make the process of documenting your advice easier.
Separation agreements negotiated “on the courtroom steps” when counsel don’t have their precedents with them are another frequent source of claims against lawyers, says Sheps. Her practice tip: Use technology to protect yourself. Take your laptop with you to court so that your precedents are readily available and you can draft a proper separation agreement. Have your client sign off on the draft contract. Otherwise, you are open to a claim from your client that “no, I didn’t agree to that.”