In many cases, property and financial matters following a marriage or relationship breakdown, can be resolved amicably and by consent, without the need for conflict or litigation. Many people ask the question, “if we have reached an agreement between ourselves, do we really need to get a lawyer?”
Whilst on the face of it, finalising matters on an informal or ‘handshake’ basis may seem like the quickest and most cost-effective way to resolve matters following a separation, the reality is that choosing not to formally document your agreement, may actually end up costing you more. If you and your spouse have reached agreement as to how you are going to divide your property, it is important that you consider the risks and benefits of formally documenting your agreement vs choosing not to.
There are two options available if you are seeking to formally document and finalise your property and financial matters, namely:
- by entering into a Consent Order; or
- by entering into a Financial Agreement.
Consent Orders are often used to outline the agreement reached between you and your spouse in relation to parenting matters, property settlement and/or spousal maintenance. Consent Orders are signed by each of you and filed with the Court for approval. Once a Consent Order is approved by the Court, the terms of the agreement become legally binding and enforceable.
In considering whether to approve the proposed Consent Orders, the Court will consider what is ‘just and equitable’ having regard to:
- the assets and liabilities available for distribution between you;
- your respective contributions at the commencement of the relationship, throughout the relationship and post-separation, if applicable. It is also important to note those contributions can be financial, non-financial or contributions as homemaker and parent;
- your respective ‘future needs,’ including age, state of health, income earning capacity, formal qualifications and whether either you or your spouse have the primary care of any children of the relationship, moving forward.
In the event that the Consent Orders have not been properly drafted or they provide for an outcome well outside of what may be considered ‘just and equitable’ there is a real risk that the Consent Orders may be requisitioned by the Court. We can however, provide you with proper and helpful advice throughout the process and ensure the Consent Orders are properly drafted, prior to them being filed with the Court.
Financial Agreements (commonly referred to as ‘Binding Financial Agreements’ or ‘BFAs’) are private agreements entered into between you and your spouse, in relation to property settlement and spousal maintenance matters. In a general sense, Financial Agreements do allow you to be more ‘creative’ with your settlement outcomes as there is no specific requirement for that outcome to be ‘just and equitable.’
Whilst Financial Agreements do not require the approval of the Court, they must comply with various technical requirements to become binding and enforceable. In that regard, both you and your spouse must each obtain independent legal advice, and each of your lawyers must also ‘sign off’ on that agreement. In the event the technical requirements are not met, there is a real risk that the agreement may ‘fall over’ at a later stage. We can however guide you through the process and provide advice to (a) ensure the necessary technical requirements are met and (b) to minimise the risks of your agreement being challenged or set aside in the future.
If you are instead minded to resolve your property and financial matters on an undocumented, informal or ‘handshake’ basis, that agreement will not be legally binding or enforceable. We would not recommend resolving your property and financial matters on an informal basis due to the significant risk (and potential costs) involved with doing so.
REASON ONE – YOU’RE LEAVING THE DOOR OPEN
By resolving matters on an informal and undocumented basis, you are in effect, ‘leaving the door open’ for your spouse to make a further claim for property settlement or spousal maintenance against you, later down the track. It may be particularly ‘risky’ if you receive an inheritance, you have a lottery win or your assets significantly increase in value, post-separation. In those circumstances, your spouse may be entitled to bring a further claim against you or ‘take a second bite at the cherry.’
Whilst there are statutory time limits within which further claims must be made (being twelve months from the date of divorce for married couples and two years from the date of separation for de facto couples) in certain circumstances, permission of the Court can be obtained and applications can still be made beyond those time limits.
When done properly and with the benefit of proper and helpful legal advice, formally documenting your settlement outcome (whether by a Consent Order or a Financial Agreement) can offer you that ‘peace of mind’ and ‘clean break’ or finality, moving forward.
REASON TWO – YOU CAN’T ENFORCE YOUR INFORMAL AGREEMENT
If your settlement outcome has not been formally documented, there is nothing preventing your spouse from simply changing their mind or reneging from your informal agreement. In those circumstances, you will not be able to enforce the terms of that informal agreement. If you and your spouse are not able to reach an alternative agreement on mutually acceptable terms, you may need to take steps to commence court proceedings, which can be a costly and time-consuming process.
If however, that agreement had been formally documented, you could take steps to enforce that agreement and compel your spouse to satisfy their obligations under the Consent Orders or Financial Agreement. In that regard, provisions triggered by a default of one parties’ obligations can be included in the terms, to safeguard against risk.
REASON THREE – YOU’RE MISSING OUT ON EXEMPTIONS
If your settlement outcome involves the transfer of real estate or other property from joint names or between names, choosing not to formally document your agreement may also mean that you are not eligible for exemptions on the payment of stamp duty or other transfer costs, that you may otherwise be eligible for if your agreement was formally documented in a Consent Order or Financial Agreement.
In many cases, the stamp duty or transfer costs payable on those transactions can far exceed the legal fees associated with formally documenting your agreement.
Many are concerned that by engaging a lawyer, conflict will surely follow – but that is not necessarily the case. Here at Jones Mitchell Family Lawyers, we see our role as assisting you to finalise your parenting, property and financial matters with your spouse as quickly, amicably and cost-effectively as possible, rather than through conflict or litigation.
If you are unsure about whether you should formalise your settlement outcome, or you need more information about which option is best for you, contact us today on (07) 5591 5333 or at firstname.lastname@example.org to speak with one of our family lawyers.