Which option is right for you?
When a married or de facto couple separates, it is usually necessary to also conclude their financial relationship with one another. To do this, there are several options that may be adopted, for example:
- Do nothing
- Verbal / informal agreement
- Financial Agreement (private contractual agreement made between the parties)
- Consent Orders (made by agreement between the parties and approved by the Court)
- Court Orders (made by the Court in the absence of agreement between the parties – i.e., litigation)
Many separated couples may not feel the need to formalise any agreement with regards to the distribution of their collective assets and liabilities. For example, in circumstances where the asset base is very small, or there is only debt to consider, or they would rather “just walk away”. Alternatively, the parties may trust one another to honour any informal / non-legal agreement they reach, and feel confident and comfortable that neither will make any future claim on the other’s assets in the months and years to come.
Needless to say, life continues to evolve, post separation. The potential impact of new relationships, further children, businesses booming, jobs lost, inheritances received, surprise lottery wins, serious ill-health, global pandemics and other unforeseen events may result in a once accepted arrangement no longer being desirable, reasonable or practicable.
Although informal agreements are the cheapest and likely quickest option, they provide little protection against the possibility that either party may change their mind in the future, and seek a different outcome to that which was originally agreed.
At the other end of the spectrum, litigating a property settlement should be considered a last resort, given the time, cost and distress that so often accompanies contested court proceedings. We note that litigation of family law financial matters is beyond the scope of this article, which will focus on options for parties who wish to settle their property matters by formal agreement.
Property Settlement by Agreement
If you and your former partner have reached an agreement about a property settlement, what are your best options for formalising this agreement to optimise your financial security and independence into the future?
When an agreement is reached, parties have the option of legally formalising their agreement, in one of two ways:
- Consent Orders
- Financial Agreement
In this article, we provide some information around formalising an agreement by Consent Orders. Our next article in the coming weeks will provide some information regarding Financial Agreements.
In a Family Law context, Consent Orders are orders that are made by the Federal Circuit and Family Court of Australia (“Court”) in accordance with the Family Law Act 1975. Consent Orders formalise the terms of an agreement reached by the parties to that agreement into a Court Order. Consent Orders are final, legally binding upon the parties thereto, and enforceable by the Court.
Consent Orders are only available to parties once they have separated. Consent Orders can cover a broad range of Family Law matters including a division of property and superannuation, as well as formalising parenting arrangements for children of the relationship.
The parties’ property interests that may be considered in a Consent Order include things such as real property (house, land, etc.) cash / savings, shares, personal property (cars, household contents, jewellery, collections etc.) superannuation, interests in businesses, and property held within Australia and overseas. Consent Orders may also include liabilities such as home loans, credit cards, taxation debts, finance owed to third parties, personal loans and the like.
Duty of Disclosure
In preparing an Application for Consent Orders, each party has a duty to provide full and frank disclosure of their financial circumstances to the other party. Each party has to sign a “Statement of truth” at the end of the Application for Consent Orders that the information they have provided in the Application is true and correct.
It is important that each party ensure they are satisfied that the other party has provided appropriate disclosure. Disclosure documents that are typically exchanged include things such as bank account statements, tax returns, pay slips, superannuation statements, statements of shareholdings, valuations of properties (if required) and the like. Failure to provide satisfactory disclosure can have serious consequences for the party who has not fulfilled their obligations.
Time limits apply for parties who want the Court to make orders in relation to their financial matters. For parties who were married, once they obtain a Divorce Order, these parties have 12 months from the date of the Divorce Order to apply to the Court for orders regarding their property interests. If parties who were married do not get divorced, the Court’s jurisdiction to consider an application with respect to an alteration of the parties’ property interests continues indefinitely.
Parties who were in a de facto relationship have two years from the end of their de facto relationship to apply to the Court for Orders in relation to their financial interests.
After these respective time frames expire, the parties are “out of time” to apply to the Court for Orders about their property interests. However, the Court has discretion to grant a party leave to apply after the end of the standard application period if the Court is satisfied that hardship would be caused to a party or a child if leave were not granted. Satisfying the Court to consider an out of time application is not automatic, and should be avoided.
Applying for a Consent Order
Contrary to how it may sound, Consent Orders can be obtained without either party going to Court. Once prepared and signed by each party, an Application for Consent Orders is filed electronically with the Court, and is usually determined by a Registrar of the Court, in the absence of the parties. The parties are notified when the Court has made the Orders.
Although it is not mandatory that either or both parties to a Consent Order engage a lawyer to assist them with this process, it is generally advisable that legal help is obtained, to ensure the documents are drafted correctly, and independent legal advice is received in relation to the effect of the proposed orders.
Filing an Application for Consent Orders
Once an Application for Consent Orders is filed with the Court, a hearing date will be appointed to consider the Application. Generally, the parties do not attend Court for the hearing.
In accordance with the Family Law Act, the Court may make any order it considers to be appropriate with regards to altering the property interests of each party to the marriage or de facto relationship.
Before making any order, the Court must be satisfied that, in all the circumstances, it is just and equitable to do so. The Court’s assessment of each party’s contributions and individual future needs is critical in determining whether the terms of the Consent Orders sought by the parties will be deemed to be just and equitable.
The Family Law Act sets out the general principles which the Court considers when deciding property settlement cases. In summary, the general principles are based on:
- Identifying the assets and liabilities of each party individually and jointly, and the value to attribute to these assets and liabilities;
- the contributions made by each party to the asset pool and the welfare of the family; and
- each party’s future needs – with the Court taking into account things such as age, health, financial resources, care of children and ability to earn an income.
This step does not involve any assessment of “fault” with regards to the breakdown of the marriage / relationship.
If the Court is satisfied that the proposed Consent Orders are just and equitable in all of the circumstances, the Consent Orders will be made, and will thereafter be binding upon both parties. Once made, Consent Orders are final and enforceable by the Court.
Stay tuned as our next article will focus on the process associated with Financial Agreements.