Getting it legal: agreeing a property settlement with your ex
Many separated couples manage to sort out what to do with their assets and agree on a property settlement. Once agreed, we strongly recommend that you formalise the agreement to ensure everything that has been agreed will be followed through.
There are two different ways to formalise a property settlement. One is a Consent Order and the other is a Binding Financial Agreement. Both of them are legally binding and finalise property settlement between separated couples, but there are some differences.
We will look into these differences in this article and provide some examples when a Binding Financial Agreement would be used instead of a Consent Order.
Consent Orders are, as the name suggests, formal orders issued by the court based on agreements made by the parties. Its effect is no different from the orders that the court makes. The advantages of using Consent Orders are:
- You do not need a lawyer to do up the documents. A ‘Do it yourself kit’ is available from the Family Court of Australia website;
- Consent Orders are not just for property settlements. You can include parenting matters in the same documents so you can finalise both at the same time;
- The court will look at the documents and ensure that it is just and equitable for both parties. As such, there is less chance that the agreement is set aside later on.
Binding Financial Agreement
Binding Financial Agreement, on the other hand, does not go through the court system. It is a private agreement between the parties.
All of the above advantages for Consent Orders become disadvantages for a Binding Financial Agreement:
- Each party will need to obtain an independent legal advice so it is more costly;
- Only property settlement and spousal maintenance can go into a Binding Financial Agreement – no parenting matter;
- Binding Financial Agreement is not scrutinised by the court at the beginning so it is more likely to be set aside if challenged later on.
So why bother with a Binding Financial Agreement?
Many people choose a Binding Financial Agreement as it is quicker to finalise. Consent Orders can take longer to prepare (the Application for Consent Order is a fairly extensive document) and once filed in the court, it can take 2 – 6 weeks for the court to issue orders, depending on how busy they are. A Binding Financial Agreement is a single document, does not contain as much information as the Consent Orders and takes effect as soon as both parties sign. So it is great for people who want to finalise things as soon as possible and get on with their lives.
There are also certain circumstances where you must use a Binding Financial Agreement instead of Consent Orders because the nature of the agreement may not be something that the court will approve easily. These may include:
- Agreements which do not finalise the parties’ financial relationship within a reasonable time (Case 1);
- Agreements involving third parties (someone other than separated couples) (Case 2);
- Agreements that may be more favourable to one party than what the court would consider ‘just and equitable’ (Case 3).
We will now look at some sample cases where a Binding Financial Agreement can be useful.
The separated couple’s only major asset was their home which was held as joint tenants. For various reasons, the couple decided that the wife should be able to live in the home with their children until the youngest child turns 18 which was more than 10 years away. However, neither party had a financial capacity to refinance the home loan so the only solution was to leave the title of the home and the loan in the joint names and then sell and divide the proceeds after the youngest child turns 18.
The basic rule of family law property settlement is to finalise the parties’ financial relationship once and for all. For this reason, the court is unlikely to approve this agreement where the parties will have to hold assets and liabilities in joint names for over 10 years.
For the sake of clarity, we do not recommend this type of agreement as it is high risk for both parties. We won’t go into the details of risks here but there are so many things that can go wrong with this including a high chance of the agreement being set aside later on.
However, if that is what both parties really want, the only way to formalise the agreement is by a Binding Financial Agreement.
This separated couple, who had adult children, was not exactly amicable. Both parties were not willing to see a chunk of their assets going to the other party (because both parties thought they should be getting more than the other party) but finally agreed that if some of the assets go to their adult children rather than the other party, they would be able to settle.
Now, from the couple’s point of view, the children are not ‘third parties’. They are family members. But as far as the court is concerned, anyone other than the couple are ‘third parties’ and agreements including payments to third parties for no good reasons would not be regarded well by the court.
So in this case, the couple chose a Binding Financial Agreement over Consent Orders.
In this case, the wife was really over the whole process and just wanted to finalise ASAP. Her husband’s offer of settlement was not reasonable and it was likely that she would receive more if she had gone to the court. However, knowing her husband, she knew that he would not make things easy and she just wanted to get it done and move on with her life. So she accepted her husband’s offer and signed a Binding Financial Agreement.
With Consent Orders, the court will look at the percentage of the property division and may not make orders if the agreement is way outside of what the court would order. So in this case, a Binding Financial Agreement was more appropriate.
However, please note that the court has a power to set aside a Binding Financial Agreement if one party forces or threats the other party to sign the Agreement. In any case, you should never feel pressured to sign any document that you do not feel comfortable with. If you feel distressed about the whole situation, it is better to seek professional help from a counsellor than rushing to make an agreement about important financial decision.
For most people, both Consent Orders and Binding Financial Agreement will work well and it is just a matter of personal preference as to which one to go with.
It is always advisable to check with an experienced lawyer to ensure that you make the best choice to ensure that you do not waste your time and effort and risk losing the deal that you secured.
For a confidential appraisal of your situation and circumstances to determine what steps may be right for you or to assist you to negotiate the best outcome, please contact us for an initial consultation.
If you are in a relationship and want to make an agreement with your partner or spouse please read our recent article Prenuptial Agreements: are they worth it?