Property settlement – do you really need to document the deal?
Many spouses are fortunate enough to reach a property settlement agreement after separation without involving lawyers.
Where relations between parties remain civil, you may not see the need to formalise the agreement.
However, there can be serious risks and consequences for failing to properly legally formalise your agreement.
What are the risks/consequences of an informal property settlement?
If you do not properly document your property settlement by Consent Orders or Binding Financial Agreement there are many potential risks and consequences including:
- You will not have a legally binding property settlement. This means the other party could try for a second bite of the cherry if circumstances change
- Your spouse’s property may be vulnerable if you separate from a new partner
- Your spouse may not follow through with the terms of the informal agreement
- Your spouse’s credit problems may affect your credit rating
- If your spouse dies your property may form part of his or her estate
- If you inherit or acquire new assets they may be accessible by your former spouse
- You may incur significant tax liability or stamp duty you were not expecting
- Any agreement to split super won’t be possible
- You may remain in business with your spouse which may leave you liable for debts, claims and other risks
What documentation is required?
A property settlement agreement can be finalised either by way of Consent Orders lodged with the Court (an administrative process) or a Binding Financial Agreement.
Both documents are binding and enforceable (provided the requirements are met – read on). Both documents enable you to benefit from stamp duty exemptions, such as if one partner is transferring their interest in a property to the other. Both documents require financial disclosure and deal with all the assets, liabilities, superannuation and resources of both partners (often called “the asset pool”).
Consent Orders refers to the document signed by the separating couple along with a document called an “Application for Consent Orders”. Together these documents set out the couple’s assets, liabilities, superannuation, and financial resources (and their values), and what is to happen to each of those items in the settlement.
The documents are filed with the Federal Circuit and Family Court of Australia (a filing fee is charged by the Court) and reviewed by a Registrar. You are not required to attend Court. Provided that the Registrar is satisfied that the Orders are just and equitable, they will grant those Orders. This is the day that the Orders become binding and enforceable upon the separating couple, and the clock starts ticking in respect to any time limits in the Orders.
You do not have to get legal advice from a solicitor to prepare/lodge Consent Orders, although we strongly recommend that you do, as once the Orders are made, they are irreversible except in exceptional circumstances. Also, there may be an unexpected or hidden outcome for you in the deal (e.g. tax consequences, stamp duty, a liability, or remaining in the family business when you need out!) and you don’t want to be left with a liability you weren’t expecting in the deal.
Binding Financial Agreements
Binding Financial Agreements are essentially an agreement made in accordance with the Family Law Act 1975 that sets out the asset pool and what is to happen to each item in the settlement. To be binding and enforceable, both of you must obtain independent legal advice as to the nature and effect of the Agreement, as well as the advantages and disadvantages to them in entering into the Agreement at the time. The solicitor for each partner must provide a statement of independent legal advice, certifying that this advice has been given.
The Agreement does not get filed with the Court and does not require a Registrar to review and approve the settlement.
In our experience, most property settlements can and should be formalised by way of Consent Orders, for many reasons, including that they are easier to enforce if things go wrong. Binding Financial Agreements have very technical requirements and do not require the approval of a Registrar of the Court (who in respect of Consent Orders, needs to be satisfied that the settlement is just and equitable to approve the orders).
For these reasons, generally, Binding Financial Agreements are reserved for unusual cases/settlements that may not be approved by a Registrar, if filed with the Court as Consent Orders.
How to save time and legal costs
If you have reached a property settlement agreement with your spouse, you can streamline the formalisation process with your lawyer by:
- Sending them a detailed list of all assets, liabilities and superannuation of both you and your spouse.
- Sending them a list of who is to keep what.
- Sending them a copy of any written record of the agreement (e.g. emails between you and your spouse, heads of agreement or similar).
Having your settlement properly documented and finalised will give you peace of mind, avoid unexpected issues and surprises.