The risks of informal property settlements
There is a common misconception amongst clients that they do not need a formal property settlement if they have an informal agreement with their former partner.*
The main reasons these clients tell us for not wanting a formal property settlemnet is the cost and trying to avoid upsetting their former partner by asking to formalise their agreement. However, by not formalising their settlement these clients are placing themselves at risk of a future claim, which can be a significantly more expensive and litigious process.
In this article we look at some the risks of informal property settlements and the benefits of formal property settlements.
What protection does a formal property settlement give parties?
A formal property settlement gives both parties protection against a future claim by the other. Once a formal property settlement has been made, parties cannot bring a new application unless they can demonstrate to the Court that it is appropriate to do so. There are very limited circumstances in which the Court will allow such an application.
Section 79A of the Family Law Act sets out those circumstances where the Court will allow Orders to be set aside. The party seeking the new Orders would need to show that one of the following applies: -
there has been fraud, duress, suppression of evidence or false evidence;
it is now impractical for the agreement to be carried out;
one party has failed to comply with the agreement and, due to the default, the Court considers it just and equitable to vary the Orders;
since making the order circumstances of an exceptional nature regarding the care, welfare and development of a child of the relationship (or a child whom the applicant cares for) will suffer hardship if the Order is not varied or set aside; or
a proceeds of crime order has been made regarding some or all of the parties property.
Similar provisions apply if parties have entered into a binding financial agreement.
This means once you and your former partner have formalised your property settlement it is very difficult for either party to come back and try to re-open the property matters. This allows both parties can then move on with their lives without worrying about the other party trying to make a claim on their assets, including any new assets they may acquire in the future.
What protection does an informal formal property settlement give parties?
If you do not formalise your property settlement you do not have any real protection against your former spouse seeking a property settlement from you.
An informal property settlement is not treated like a formal property settlement. Often these informal agreements are not written down and become a ‘he said she said’ situation. It can be difficult to determine what the terms of the agreement actually were.
Even if the agreement was written down there is no legislative requirement that the Court uphold the terms of an informal agreement. The Court may give some consideration to what the parties intended to do; however, it is highly unlikely the Court would find an informal agreement binding on the parties.
What about limitation periods?
While there are limitations periods that apply in family law matters, they do not provide you absolute protection from a future claim.
For more information about limitation periods, see our article When do I have to take action? Limitation periods in Family Law.
What happens if my informal property settlement is not upheld?
If your informal property settlement is not upheld, it then becomes necessary to start the property settlement process from the beginning.
This requires each party provide a full and frank financial disclosure of their current financial position and working out each party’s entitlement. Depending on the number of years you have been separated and the extent of your financial dealings, this can be an expensive and difficult exercise.
It is also important to remember that: -
Any assets or liabilities purchased after you separated from your former partner are likely to be included in your asset pool.
Your assets are to be valued at the current date, not the date you separated.
Your current circumstances are taken into account when working out your likely entitlement to the asset pool. This can mean what you or your former partner was entitled to at separation, is markedly different from what you are now entitled to.
What should I do if I have an informal agreement?
If you and your partner agree on the settlement, Consent Orders are an easy way to formalise your agreement.
* Formal property settlements include Consent Orders and Binding Financial Agreements. At Mastronardi Legal we recommend our clients enter into Consent Orders over Binding Financial Agreements.
Please note: the information in this article is general in nature. For specific advice about your circumstances, contact us to make an appointment with one of our solicitors.