Understanding Informal Property Settlement Risks and Their Blind Spots
There is no legal requirement for separated parties to enter into formal property settlements. In fact, parties can do whatever they like once they are no longer in a relationship. However, the advantages of formalising any agreement reached or, obtaining property Orders from the Court generally outweigh the disadvantages. It is important for parties to be aware of these disadvantages, in the event an informal property settlement (or no settlement at all) is considered, in the face of separation. Here, at Rafton’s we ensure our clients are equipped with all the information necessary to make the best decision suited to their individual circumstances.
There are two main ways for separated parties to formalise a property settlement. The first (and most common and practised way) is by way of an Application for Consent Orders submitted to the Federal Circuit and Family Court of Australia. The second is by way of a Binding Financial Agreement. Sometimes however, people do not do either of these, and try to resolve matters as between themselves. In the family law world, this is referred to as, an ‘informal property settlement.’ This could either be a verbal agreement, a brief discussion or a bit of writing on a piece of paper.
But danger lies within the informal property settlement, especially where distrust and ambiguity (common characteristics associated with separation) live. Thus, parties should be aware of the blind spots that are part and parcel of an informal property settlement. The below case studies are perfect examples to demonstrate the need to be cautious when dividing assets with their separated partner and more importantly, the importance of obtaining solid legal advice at the time of separation, before any decisions (either way) are made.
One blind spot for parties is that they may not realise the agreement they have entered into is not a Binding Financial Agreement for the purposes of Part VIIIA of the Family Law Act 1975 (Cth) “The Act”. This was explored in the case of Senior v Anderson [2011] FAC CAFC 129. It was held that, “financial agreements can, like any other agreement, govern the actions of the parties to them and bind the parties to obligations, but do not oust the jurisdiction of the Court. Parties to an agreement that satisfies the definition of “financial agreement” are bound by its terms (or not bound as the case may be), just as they would be bound (or not bound) by any other agreement… however, an agreement’s failure to be “binding” in the s90G sense renders its use in Part VIII proceedings to be very limited; specifically it does not operate as a bar to Orders made under that part.” [at paras 94 – 96]. In essence, whilst a Financial Agreement was still considered contractually binding, it did not meet the specific requirements of section 90G of the Act, therefore opening the division of assets up for reconsideration by a judge.
Parties should therefore be aware that a “Financial Agreement” and a “Binding Financial Agreement,” are two very different things. At Rafton Family Lawyers, we have many a time received a document that purports to be a Binding Financial Agreement for the purposes of part VIIIA of the Act but, in fact, does not meet the requirements necessary to make the Agreement binding. The case is a caution to parties that any informal agreement or otherwise, can always be overturned if it does not meet specific legislative requirements to prevent this from happening.
This was also emphasised in the matter of Landry & Talford [2020] FCCA 3442, (a case where there was no formalised property settlement between the parties) where it was held that, “It must be noted that such an agreement would not be binding and could only be considered as a guide or as part of the factual matrix in respect of this case. A financial agreement between the parties to a marriage (or otherwise) is not binding upon this court unless the requirement of part VIIIA are met.” [at 95].
Whilst the matter of Bevan v Bevan [2014] FamCAFC 19, upheld an informal property settlement, it highlighted another potential blind spot for parties; that unless there are continued and ongoing representations about an agreement being made, then an informal property settlement may not be binding. It was held at [82] that, “the parties did give express consideration to what should become of their property. In such circumstances, we consider the husband must do more than point to the end of the relationship in orders to persuade us that there is some sort of principled basis upon which we should interfere with an existing state of affairs created by the consent or, at the very least acquiescence of the parties.” It was also stated that, “not all these matters would necessarily assume great significance in the event that the husband had not made any representations to the wife, and had instead endeavoured to obtain a settlement of property in a timely fashion.” [at 84].
The case law is certainly a lesson for parties to obtain legal advice before dividing assets with their separated partner/spouse. Our family law specialists at Rafton Family Lawyers are here to give that expert advice in your property settlement. Whether it’s a basic question or to review draft documents, we will assist you to ensure that you have not missed anything before finalising and dividing your assets.
For more information or to enquire about a consultation, contact us at reception@rafton.com.au