If you have recently separated or divorced, you may be wondering how to finalise the division of your property and financial resources so you can finally have financial freedom from your former partner or spouse.
How can you legally divide your assets?
- A Binding Financial Agreement
- Consent Orders
- By application to the Court
We will explain the differences below to help you decide which option is best for you. It is also very important to obtain legal advice before entering into any property agreement.
Why is it important to have a legally binding agreement or order as opposed to an informal agreement?
- It reduces the risk of one party applying to the Court for a property settlement
- It ensures you have obtained full and frank disclosure of your ex-partner’s financial situation and assets
- It can protect future inheritances
- It can avoid a lengthy and expensive family court process
- You can both obtain a fair resolution without the stress and cost of litigation
- You can be completely financially separated from your former spouse
Informal agreements, whether in writing or verbal, are not legally binding or enforceable by a court. Unless an agreement is legally formalised, your former spouse could still apply to the Court for a property settlement at some later date and the property pool would include all assets up until the date of the agreement not the date of separation or divorce.
When should I formalise a property settlement?
As soon as possible, either before or after separation, as the property pool comprises assets, superannuation and debts of the parties as at the date the agreement is signed and not at the time of separation or divorce. We recommend you seek legal advice and attempt to divide the property pool sooner rather than later.
Do I need to be divorced to make a property settlement?
No, you do not have to be divorced to make a property settlement. A property settlement can be made as early as the day after you have separated. We strongly recommend you attend to this as soon as possible as the time limit to apply for consent (and parenting orders) from the Court lapses one year after the date a divorce certificate is issued (and two years after separation for de facto relationships). The Court will only grant orders in relation to property division and/or parenting after this time in exceptional circumstances.
I don’t have any assets in my name. Does this mean I have no claim?
Even if assets are only in the name of one party, the ‘property pool’ includes all assets, even those that are not in joint names such as superannuation.
Is there a presumption that the assets will be split 50:50?
No, the presumption that assets will be split 50:50 automatically is a common misconception. There are important factors to consider before determining whether an equal division is fair and equitable. These factors include:
- The contributions made by each party, including financial and non-financial, such as caring for children, homemaking, etc.;
- The future needs of both parties; and
- Other relevant factors the Court sees fit to consider.
To ascertain what a fair and equitable property agreement looks like, your lawyer can advise you of your likely entitlement having regard to your individual circumstances and the process used by the Court.
Will everything have to be sold?
No, not necessarily. There are several ways to achieve a fair and equitable outcome, such as super splitting (where superannuation is transferred between former partners) or making other adjustments in relation to you and your former partner’s debts and/or assets. If there is a mortgage on any real property (say a house) included in the property pool, your lawyer can advise on options to deal with this as part of the property settlement.
So, Binding Financial Agreement or Consent Orders?
Binding Financial Agreement (‘BFA’)
A BFA is a contract signed by both parties outlining how the assets, liabilities and superannuation of the parties are to be divided. BFAs can also cover spousal maintenance and other issues. Such agreements are generally complex and the terms must be drafted in accordance with the circumstances of each matter.
- More flexibility with settlement terms
- Does not require approval from the Court and doesn’t need to be filed at the Court
- Does not require court-ordered full and frank disclosure
- Can finalise spousal maintenance
- Transfer duty exemptions and CGT rollover relief
- Super splitting
- Parties can alter their interest
- Can be subject to challenges or compliance issues with enforcement
- Independent legal advice is required for both parties
- The Court does not determine what is “just and equitable”
When can a BFA be made?
A BFA can be made before, during or after a relationship and can prevent either party from making an application to the Family Court for the division of assets in a property settlement.
Do I need legal advice?
Yes, for a BFA to be legally binding, both parties must obtain their own independent legal advice to ensure they understand exactly what they are agreeing to. The BFA must be signed by both parties and contain a signed statement from both parties and their lawyers saying that they have received legal advice regarding how the agreement will impact upon their rights and whether such agreement is advantageous having regard to their individual circumstances.
Does a BFA require approval from the Court?
No, unlike Consent Orders, a BFA does not require approval from the court and is not filed in the Court. However, if the document is not properly drafted, the agreement may be subject to challenge or there may be compliance issues with enforcement. This could result in an expensive process for the Court to determine if the agreement is enforceable or should be set aside. This process could result in years of litigation and the chance one party is ordered to pay other’s legal fees. That’s why you need an experienced lawyer to assist you.
Is there a requirement for a BFA to be “just and reasonable”?
BFA’s allow for more flexibility and parties can take into account practical considerations and other circumstances in determining a satisfactory agreement. Parties able to enter into unfair agreements if they like, however, agreements that do not comply with the strict guidelines set out in the Family Law Act may not be binding.
What other issues can a BFA address?
Spousal maintenance can be finalised under the terms of a BFA.
Is there an obligation for full and frank disclosure?
The Court requirement of full and frank financial disclosure does not apply to BFAs and parties contract out their rights and responsibilities under the Family Law Act. However, a BFA could be set aside in cases of non-disclosure of a material fact especially if it involves fraud. It is also not helpful where parties choose to keep their finances private, however, sometimes parties are motivated to settle without full financial disclosure.
Consent orders are agreements made between the parties that are approved by the Court and made into a formal Court Order. Before the Court will grant Consent Orders, it must be satisfied that the agreement is “just and equitable”.
- The Court will only grant an Order that is just and equitable in the circumstances
- Independent legal advice is not required, though strongly recommended
- Full and frank disclosure of financials is required
- Transfer duty exemptions and CGT rollover relief
- Super splitting
- Requires approval from the Court
- Less flexibility in settlement terms
- Once an Order is made, it is difficult to alter later
- Requirement of full and frank disclosure can be onerous
- The Court cannot make a spousal maintenance order that is final
What is “just and equitable”?
When the Court determines if an proposed Consent Order is just and equitable, it will consider if it is fair to both parties and that the orders sought would fall within the range of possible outcomes that could have been granted had a judicial determination been made.
Is full and frank disclosure required?
Yes, the Court requires the full and frank financial disclosure of both parties. The parties must provide full and frank disclosure of all financial information, including documents that may be relevant to the matter. If this does not occur, there is a possibility that the orders may may not be granted or may be set aside later. If the parties have complex and significant financial arrangements, significant time and expense may be taken to ascertain the true value of the assets and there is a potential for other parties such as family members to become involved in the process.
Are consent orders flexible?
Once a Court order is made, it is quite difficult to change later as only the Court can make alterations to the Order.
Can Consent Orders finalise spousal maintenance?
The Court will consider the future and financial needs of parties but cannot make a spousal maintenance order that is final, therefore, a claim for spousal maintenance could be made subsequently. The Consent Orders could also deal with parenting matters.
If you would like to speak to one of our lawyers about your property settlement, please contact us on (07) 4580 1136 or via the Contact Us page on this site.