When you reach agreement about how your property will be distributed after separation it is essential to document the agreement in a formal way. Without a formal agreement, that is, either a Consent Order made by the Family court of Australia or a Financial Agreement entered into under the Family Law Act, there is no certainty that your matter is truly at an end.
We have seen far too often a scenario where the parties have written down their agreement on a piece of paper, gone to the effort of signing it in the presence of a Justice of the Peace, only for the agreement to be ignored when one party seeks a further distribution of property. A written agreement, signed in the presence of the Justice of the Peace or other witness, is not a binding document, unless it is a Consent Order or Financial Agreement.
What is a Consent Order?
Where you have reached agreement about your property matter you can make an application to the Family court of Australia to have the agreement made into a formal court order. The process involves completing an Application for Consent Orders and preparing formal court orders (Proposed Orders) in the form that will be accepted by the court. The parties sign the Application and Proposed Orders and lodge them with the Family court, paying the required lodgement fee.
This process can be done with or without legal advice, though we recommend seeking advice about the Proposed Orders to make sure that they are within the range that the court would find acceptable, and therefore make the orders. It is also important to consult a lawyer about the drafting of your Proposed Orders.
You can enter into a Consent Order about all aspects of property settlement, save and except that you cannot contract out of any spouse maintenance obligation. Any reference to spouse maintenance is best dealt with in a Financial Agreement.
What is a Financial Agreement?
A Financial Agreement is an alternative way to formalise your property settlement. It can include all of the same information and agreement (similar to the Proposed Orders) that you have reached. The difference lies in the strict legal obligations imposed by the Family Law Act. These exist because through a Financial Agreement, you are contracting out of your right to have the Family Law Courts determine your property matter, including any right to spouse maintenance.
For a financial agreement to be binding it must:
- be in writing;
- be signed by all parties;
- before signing the agreement, each party must receive independent legal advice from a legal practitioner about the effects of the agreement on the rights of the party and the advantages and disadvantages of entering into the agreement at the time the advice is provided;
- before or after signing the agreement, each party must receive a signed statement by the legal practitioner confirming that the above advice was provided with a copy of the statement provided to the other party or their lawyer;
- The agreement has not been terminated by further agreement or set aside by the court.
Due to the nature of a Financial Agreement there is a significant amount of work that goes into the agreement to make sure that the strict legal requirements are complied with and that the Financial Agreement is binding and protects your interests.
For those reasons, a Financial Agreement differs to a Consent Order given the strict requirement for independent legal advice. Both parties must engage with and attend upon a lawyer for advice about the Financial Agreement.
Are there other types of Financial Agreement?
There are two other categories of Financial Agreement which parties can enter into to document agreements they have reached about how their property might be divided if they separate:
- Financial Agreement before marriage, or before defacto relationship;
- Financial Agreement during marriage or defacto relationship.
Financial Agreements before your Relationship
You may commonly know these agreements as a prenuptial agreement, or a ‘prenup’, though this is just one type of financial agreement.
Such agreements are often considered distasteful, even though they simply act as a form of insurance. You may never need to rely on it, but if you do need to, chances are you will be glad to have had the forethought to form the agreement.
This type of Financial Agreement, properly prepared, has the effect of contracting out of a parties right to later bring an application for property settlement. As a private agreement a Financial Agreement does not require registration or approval from the court. Such an agreement may be what stops you and your partner from ending up in court over a disagreement if your relationship ends.
There are a range of uses for Financial Agreements – they can be particularly useful if:
- You and your partner are in unequal financial positions at the beginning of your relationship;
- You want clarity or peace of mind about how your assets and liabilities will be divided if the relationship ends;
- You may want to protect something specific from any potential property division in the future, this could be a business interest or an inheritance/heirloom, or a trust;
- You may also have children from a prior relationship that you wish to financially protect, particularly their inheritance.
Financial Agreements during your Relationship
These types of Financial Agreements might also be known as cohabitation agreements, that is an agreement between two parties who are living together.
Again there are a range of uses for this type of agreement including:
- Reaching an agreement about how you are to contribute to expenses of the household;
- Reaching an agreement about how you contribute to each other’s property;
- Protecting any lump sums received, windfalls, or gifts / loans from third parties.
What can a Financial Agreement can specify?
A Financial Agreement can set out the details for a wide range of financial matters depending on your circumstances and assets. These commonly include:
- The agreed way to divide the asset pool if the relationship ends;
- The details of any financial settlement that will be made;
- The details of any financial support for one spouse by the other;
- Agreements on arrangements for any children of the relationship;
- The division and classification of assets that you each held before the relationship, compared to the assets that you may have acquired together during the relationship.