The breakdown of a relationship requires the distribution of the property acquired and shared during the relationship. A property settlement is the process of dividing the assets, property, finances and debts of a married or de facto couple.
There are four methods of effecting a property settlement for married and de facto couples:
- Informal Agreement
- Consent Court Orders
- Binding Financial Agreements
- Court Orders after a contested Court Hearing
An Informal Agreement is when you and your former spouse choose not to make formal legal arrangements to finalise your property affairs. These agreements do not need to be written. Informal agreements are dangerous and provide no certainty. They are unenforceable in the courts and will not protect your property if things go wrong. They may also create far-reaching, unintended legal consequences such as impacting upon an inheritance. There may also be serious taxation consequences, particularly if you or your former spouse intends to remain in the residence you formerly shared.
Consent Court Orders
Consent Orders are agreements reached between you and your former spouse formalised into a court document. Once signed by both parties, the Orders are forwarded to the Family Court for approval. Depending upon the nature of the agreement, additional financial material might also need to be filed with the Application.
In most cases you are not required to attend the Court for Consent Orders to be made. Consent Orders provide certainty and are enforceable in the Family Court. Legal advice should always be sought before signing Consent Orders as they are legally binding and carry with them serious legal consequences.
Binding Financial Agreements
Binding Financial Agreements are contracts that set out the agreement reached about how your property and financial resources are to be distributed upon separation. These agreements can be made at any time before, during and after a marriage. Binding Financial agreements can cover all of the property of the parties, or you may choose to deal with selected assets only. That is, the agreement can specify what happens to all assets (assets owned prior to marriage and assets acquired during the marriage) in the event that separation occurs or the agreement might only specify what happens to one item or a particular class of assets (e.g. an inheritance).
Binding Financial Agreements are signed by both spouses and their respective lawyers. Copies are then exchanged and kept by each party. There are particular requirements which must be contained within Binding Financial Agreements for them to be legally recognised. If the agreement complies with the legislative requirements, the parties are then prevented from going to court for orders relating to the property covered in the Binding Financial agreement. It is sometimes also possible to prevent spousal maintenance applications.
You need to obtain legal advice if you are considering this type of agreement. If a Binding Financial agreement complies with the requirements set out in the Family law act it will be binding on and enforceable against the parties. It is important to note that a Binding Financial agreement is essentially a contract and all contracts can be set aside in certain circumstances, for example, where agreement has been obtained by fraudulent means or there is a material change in circumstances.
There are risks with Binding Financial Agreements that can be minimised by seeking good legal advice. Unlike with Consent Orders, neither party is required to make financial disclosure to the court (as the agreement is not filed with the court) when entering into the Binding Financial Agreement. Thus, the agreement need not be fair and can favour one party over the other. The court will not set aside an agreement simply because it is “unfair”. This is partly because prior to signing the agreement, the parties must each obtain independent legal advice from a solicitor, including advice as to the advantages and disadvantages of entering into the agreement. Once the advice is given, the solicitor for each party will attach a certificate confirming that advice was given before the parties entered the agreement. This prohibits parties from arguing that, at the time of signing the agreement, they were unaware of the consequences of signing it.
Court Orders After a Contested Court Hearing
These are Orders made by the Court after a formal hearing. Each party files an Application containing the Orders they seek and the dispute is set down for a formal hearing. Each party is usually represented by a solicitor and barrister.
There are few benefits to Court proceedings. You and your former spouse lose all control of the process and the outcome – a stranger will decide how your property is to be divided. There is likely to be significant delay between the filing of the Court Application and the hearing. With the hearing process being adversarial in nature, existing conflicts will invariably escalate and possibly create new issues between you and your former spouse. The costs of Family Court proceedings are likely to be very significant.
The vast majority of property settlements are achieved by negotiated settlement. Even in those matters where Court proceedings are commenced, most are settled before a formal Court hearing occurs.
Court Orders after a contested Court Hearing are legally binding and there are serious consequences if they are breeched.
Considerations in the Property Settlement Process
The following considerations are used to determine a just and equitable distribution of property and financial resources, whether you and your former spouse negotiate a settlement of your property affairs or the Court is required to decide for you:
- What are the net assets? These includes such items as houses, cars, investments, money, funds in bank accounts, personal property, businesses, trusts, superannuation, etc. The property needs to be carefully identified and valued so that there is a comprehensive list to form the basis for discussion.
- What contributions has each of the parties made to the relationship? Contributions include financial contributions (for example: any real estate, money, gifts, inheritances, trusts and property brought by either party to the relationship before and during the relationship); and non-financial contributions (for example: contributions made as parent and homemaker). Any individual or joint debt and contributions to the accumulation of said debt is also considered.
- Are any adjustments of property required to provide for the future needs of each party? Consideration is given to issues such as: with who will any children of the relationship live; the age and health of each party and the income-earning capacity of each party.
- Is the outcome just and equitable? At the end of this process an assessment must be made as to whether the proposed division of assets is just and equitable in the circumstances.
On 1 March 2009 the laws governing the division of property between de-facto couples in New South Wales was changed. Now, in many cases, people in de facto relationships will have the same rights and go through the same process as married couples when determining property settlement matters.