You may think that you and your former spouse have come to an agreement. You may have even split your assets according to that agreement and be living completely separate lives. But how do you ensure that your former spouse can’t come back one year, or maybe even several years, down the track demanding more? Read below to find out the importance of formalising your property settlement.
In the case of Eufrosin & Eufrosin [2014] FamCAFC 191 a wife was ordered to pay her estranged husband the sum of $500,000 following a $6 million gambling win. The Court made this decision despite the fact that the parties had been separated for over five years and they had informally reached an agreement and distributed their property accordingly at the time of separation.
In the case of Ordway [2012] FMCAfam 624 the Federal Circuit Court of Australia granted leave to hear a property settlement 26 years after a divorce was granted to the parties. Again this occurred despite the fact that there was an informal agreement in place between the parties.
The examples above demonstrate the importance of finalising any agreement made to avoid one party making a claim against the other in the future.
How to Finalise a Property Settlement
There are two ways in which a husband and wife or de facto couple can finalise a property settlement upon separation:
- By entering into a binding financial agreements (“BFA”) or;
- By making an application for consent orders.
Until an agreement is documented in one of these forms it will be considered an “informal agreement” and is not legally binding.
Binding Financial Agreements
Binding financial agreement is the term used for what is sometimes known as a “prenuptial agreement”. A BFA can, however, be entered into before marriage, during marriage and after a divorce order has been made.
In order for BFA to be binding a number of steps must be taken. One of these steps involves both parties seeking independent legal advice as to the effect of the agreement on the rights of each party and the advantages and disadvantages of entering into the BFA.
For further information about BFAs see the “Carr & Co – Binding Financial Agreements” expertise or contact Carr & Co on 9322 8000.
Consent Orders
A consent order is a direction given by a Court in accordance with the terms of settlement agreed to by the parties. When considering an application for consent orders in respect of property settlement, the Family Court must be satisfied that the orders proposed are just and equitable.
This means that the agreement must be considered to be fair to both parties by the Court. In determining whether the consent orders are just and equitable the Court will have regard to a number of factors detailed in section 79 of the Family Law Act 1975 (Cth) (see “Expertise – Property Settlement” section).
Consent orders differ to a BFA in that BFAs are not required to be fair. One party is usually agreeing to settle for a much lower percentage of the net assets to which they may be entitled.
An application for consent orders is also known at the Family Court of Western Australia as a ‘Form 11’. It must be filed along with a minute of consent orders and a letter to the Court. This application requires payment of a fee which is currently $155 (as at June 2015). You may, however, be eligible to an exemption from this fee depending on your financial circumstances.
Advantages of Consent Orders
Consent orders can be made with respect to parenting settlement arrangements, property arrangements and spousal maintenance.
When a property is transferred from one party to the other if pursuant to a Court Order, there will be nominal transfer duty payable on the transfer. If an investment property is transferred pursuant to a Court Order, it will be subject to capital gains tax (“CGT”) rollover relief provisions and may be exempt from CGT for that transfer.
In Australia a marriage must have irretrievably broken down for twelve months before a party can apply to the Family Court for divorce. An application for consent orders is distinct from an application for divorce. Consent orders may be filed any time after separation.
Limitation Periods
Consent orders may be filed by both married and de facto couples.
De facto couples have two years from the date of separation in which to file an application for consent orders.
Married couples have one year from the date that their divorce order has taken effect.
Leave (permission) of the Court to file after the expiry of these time periods can be obtained, however, this process can be costly.
Risks of not finalising your agreement
There are many reasons why one party may have a change of mind in respect of an informal agreement.
If a settlement cannot be reached between the parties by consent one party may need to commence proceedings in the Family Court. This can be both time consuming and costly and could have easily been avoided had your agreement been finalised. It is therefore in the interests of both parties to reach an agreement by consent.
For these reasons we recommend seeking advice in relation to filing Consent Orders while you and your former spouse are still on amicable terms.
Further information
For further information on Consent orders or property settlements please contact Carr & Co on (08) 9322 8000 or contactus@carrco.com.au