If you’ve reached an agreement about your financial separation you might be asking yourself “How do I make sure this is really finished?” And that’s an important question to ask because there are lots of reasons why turning your agreement into a formal document is important.
Why does formalising a financial settlement matter?
Turning an agreement about property settlement (the division of assets, debts and superannuation after the end of a marriage or de-facto relationship) into legally binding documentation is important because:
- It will make sure things really are final. Without the right paperwork either person might come back in a few years to try and negotiate an alternate settlement. Depending on the circumstances, they might succeed in that attempt. But even if they don’t it will be a complicated and expensive process to convince a Court to stick with your informal agreement
- When some assets are transferred from joint names to one person’s sole name (or from one person to the other) stamp duty becomes payable. If the transfer is part of a formal property settlement agreement then there is an exemption from stamp duty. If it’s a real estate property that is being transferred then that will be a big saving.
- If your agreement includes clauses about ‘splitting’ superannuation (ie: giving one person a share of the other person’s superannuation), then you’ll need a formal agreement because superannuation funds aren’t allowed to ‘split’ superannuation unless it is contained in the right kind of formal agreement.
Option 1 – Consent Orders
The most common way to formalise a property settlement is to ask the Family Court to make ‘Consent Orders’. Consent Orders are enforceable in the same way as Orders made by a Judge at the end of a Court hearing. But instead of the Judge deciding what Orders should be made, you decide, and ask the Court to approve the agreement.
To get Consent Orders made you need to file two main documents with the Court:
- A document setting out the Orders you want the Court to make; and
- An ‘Application for Consent Orders’ form.
The first document will set out the changes in ownership that need to happen (such as a house being transferred into one person’s sole name) and the time-frames for each step. The second document will provide detailed information about both your financial circumstances.
Once you have lodged these forms a Registrar at the Court will review them and decide if it is appropriate to make the Orders. The Registrar will be considering:
- Whether the agreement will produce a ‘just an equitable’ outcome, in the eyes of the law; and
- If the wording of the Orders you are asking the Court to make are technically right.
If all is well you’ll be notified when the Orders are made and you can start putting your agreement into action. If there’s a problem with your document the Registrar will let you know. It might be that more information, or a change of wording is needed. Or, if the Court determines that the Agreement is not ‘just and equitable’, then you would need to renegotiate, or formalise your agreement a different way.
You are allowed to draft your own documents for the Court – but they aren’t easy to get right without legal training, so I recommend engaging a lawyer to draft them. You can keep your legal costs down by having a close look at the Application for Consent Orders form before you ask a lawyer to draft the documents so that you will know what information they need from you. The Court has a helpful DIY kit which provides extra guidance about the form. And if you are doing the drafting of the Orders yourself you can also find a template for that document on the Court’s website.
What if you are seeking Consent Orders about your children too?
Sometimes people want to formalise an agreement about parenting arrangements at the same time as property settlement. If that’s the case – and if Consent Orders are the right option for the agreement about your children – then you can do this all in the same set of documents, but the Court will need some extra information – including an extra form.
Option 2 – Binding Financial Agreement
Another, less commonly used, option for formalising an agreement about financial separation is a binding Financial Agreement (which you might hear a lawyer refer to as a ‘“BFA”).
Binding Financial Agreements do not need to be approved by a Court. This means that they can be useful where an agreement might not be approved by the Court. But because no Court will be reviewing the agreement, there is a requirement that each party receive detailed legal advice prior to signing the Agreement, and the lawyers who provide that advice have to certify, as part of the Agreement, that the advice has been provided. Binding Financial Agreements are also more complex legal documents than Consent Orders. These factors mean that a Binding Financial Agreement is usually a more expensive option, and cannot be done without lawyers.
Splitting superannuation – an extra complexity
Quite often an agreement about financial separation includes provision about re-distributing superannuation entitlements (which is known as ‘super-splitting’). Super-splitting can be included in Consent Orders, or in a binding Financial Agreement. But there is always an extra layer of complexity because the superannuation fund gets to have a say about the super-splitting clauses in Orders and Agreements. It is unusual for a superannuation fund to object to super-splitting orders or clauses, but the Court won’t make the Orders, and the Financial Agreement won’t be binding, unless the superannuation fund has been given the opportunity to comment on a draft.
What about child support?
For most families arrangements for ongoing financial support for children (usually called Child Support) are dealt with separately from the division of assets, debts and superannuation entitlements. And usually child support changes over time to reflect changes in each parent’s income and changes in children’s living arrangements as they grow up. Many families are content to let their child support arrangements be determined by the Child Support Agency.
But sometimes people reach an agreement about financial separation that includes clauses about child support. It might be that they agree to an arrangement that will be different to the Child Support Agency’s approach. Or they might agree that one parent will retain more assets after separation as a form of ‘lump sum’ child support. Or there could be an agreement about the payment of particular costs (such as private school fees) that should be paid in addition to variable payments, as determined by the Child Support Agency.
When these sorts of agreements are made it will usually be important that they be formalised as well. Depending on the nature of the agreement, this might require drafting of a separate document called a Child Support Agreement – or the agreement might be able to be included in Consent Orders, or a binding Financial Agreement.
Spouse maintenance – an exception to the ‘clean break’ principle
In most cases a financial separation will end the financial relationship between a couple (aside from child support). In fact, the Court is unlikely to approve Consent Orders if they don’t provide such a ‘clean break’.
But for some people a fair settlement can only be achieved if it includes an ongoing payment, from one person to the other, of ‘spouse maintenance’. Agreements about the payment of spouse maintenance can be included in Consent Orders and in a binding Financial Agreement. There isn’t the same level of finality to a financial separation that includes spouse maintenance clauses though, because changes in either person’s circumstances in the future might warrant a change to the spouse maintenance arrangements.
Full and frank disclosure is critical for finality
While you were negotiating your financial separation you were probably told, by a lawyer or a mediator, that you each have an obligation to make full and frank disclosure about your financial circumstances, so that you can both make an informed decision about your agreement. The information you have each disclosed will end up in the Application for Consent Orders form, or recorded in the binding Financial Agreement.
Making full and frank disclosure is also critical to ensuring your agreement will be final. The Family Law Act includes provisions which allow a Court to set aside Consent Orders, or a binding Financial Agreement, if it comes to light later on that one person did not make full and frank disclosure at the time the agreement was made. And if this happens a new settlement will need to be negotiated, or determined by a Court.
What about the time limit for property settlement? Can you make things final by just letting the time run out?
If you have received legal advice, or spoken to a mediator, you have probably learnt that there is a time limit for making an application for property settlement (12 months from divorce for married couples and 2 years from separation for de-facto couples). Sometimes people think that rather than incurring the expense of Consent Orders or a binding Financial Agreement they can just let the time run out and create finality that way. But this is a risky approach because the Family Law Act has provisions which allow an application to be made late in some circumstances. When a financial separation agreement has not been formalised there is always a risk that it might be re-opened at some point in the future.
Reaching an agreement about financial separation is hard work. If you’ve got an agreement then it’s important to make sure the agreement you reach really is final so that you can each have certainty about the new life you’ll be starting to build. If you’re still working out your agreement then you might benefit from a mediator’s help. If you would like to know more about mediation just get in touch.