The answer to this question is that even if an agreement about a property settlement is written down and signed (what is sometimes called an ‘informal agreement’), unless certain steps are followed, the informal agreement will not be binding.
An agreement can be made binding in two ways:
filing for consent orders in the Family Court; or
signing a binding financial agreement (‘BFA’) which complies with the Family Law Act 1975.
A consent order is an enforceable Court order that is made after a joint application by the parties, and a BFA is a type of contract, which is made privately without applying to the Court. Each has its own benefits and disadvantages, but both are equally binding.
Even in simple situations where there aren’t big sums of money involved (or even if there is only debt), it is important that a property settlement agreement is made binding.
So why is it so important?
Arguably the biggest benefit of a binding agreement is that it will bring finality to property settlement matters.
One of the biggest risks with having only an informal agreement is that if either party doesn’t follow it, the other person will have almost no rights to enforce it.
If the agreement isn’t binding, one party could change their mind or decide they ‘deserved more’. If this happens, the informal agreement cannot be used to stop it and a Court might impose something entirely different, not to mention the time and money you will spend going through the process (which will usually be more than what it would have cost to draw up a binding agreement).
The matter will also be decided based on the assets and liabilities at that time, as the property pool does not get backdated to the date of separation or the informal agreement. So, for example, if after separation you have saved up or received some money, whilst your ex has built up some credit card debt, then you might be left arguing about what should and shouldn’t be included in the property pool.
Preparing a binding agreement also gives parties the opportunity to get disclosure from each other so that each party knows what the financial position actually is and exactly what each person is getting out of the settlement.
Even if you and your ex separated on good terms and you feel confident that neither of you would go back on your agreement, sometimes there can be unintended issues.
The most common issues are forgetting to or not properly factoring something in (for example, forgetting to factor in capital gains tax or not removing one party’s name from something), or not releasing one party from a liability or personal guarantee (such as a mortgage, finance or credit card).
For example, say you agree that your ex keeps the car and takes over paying it off, but you aren’t properly released from the finance agreement or personal guarantee. Down the track the bank or finance company might come to you, and even though you don’t have the car anymore you might still be on the hook to pay. A binding agreement prepared by a lawyer would protect you in this kind of situation.
Formal agreements also have additional benefits including allowing for a superannuation split, certain transfer duty exemptions, and protecting your estate if one of you passes away. Consent orders can also deal with parenting arrangements if the parties also want to include them.
Seeing a lawyer to formalise your agreement will also give you the benefit of advice on exactly what your agreement means for you and your rights and obligations, and whether the agreement is within the range of what would be considered to be fair.
To discuss further, contact Dannielle Glaister in our Family Law Team today on 07 3009 6555.