Once parties have reached agreement in relation to how to divide their property following the breakdown of their relationship it is imperative that they record the agreement in a legally binding format. Under the Family Law Act 1975 (the Act), parties can either consent to orders being made by the Federal Circuit Court of Australia or Family court of Australia, or, enter into a Financial Agreement under section 90 of the Act.

Unlike in some parenting matters, where for reasons of flexibility for example, cooperative parents might elect not to enter into Consent Orders or a Parenting Plan, it is almost always necessary in property settlement matters to enter into Consent Orders or a Financial Agreement. Until the settlement reached is recorded in a legally binding format, both parties can be affected by the other’s behaviour. The potential risks for a party are that:

  • Wealth generated by them post the making of an informal agreement may have to be shared with the other party; and/or
  • Debt generated by the other party post the making of an informal agreement may be shared with them.

Obviously, the party whose ex-partner continues to grow their asset position following separation may stand to benefit from sharing in the improved asset position. It is however a risky position for a party to link themselves financially with their ex-partner following separation and something that most parties want to avoid.

The Honourable Justice Kent of the Family Court of Australia recently handed down judgment in a matter1 where it was argued, on behalf of the husband, that the parties had reached an informal agreement many years prior to trial. In that case, the husband argued that separation occurred in 2003 and that the parties had reached an informal agreement in relation to property settlement at that time. On that basis, the husband contended that it was not just and equitable for the Family Court to make a property settlement order. Interestingly, in 2003 the property pool had a value of approximately $6,000,000 and at the time of trial the pool had a value of approximately $10,000,000.

In rejecting the husband’s contention His Honour noted:

  • That there is a long line of case law to the effect that an agreement between parties to a marriage that purports to exclude the jurisdiction of the Court offends public policy and is void; and
  • Under the Act, there are formal requirements that must be met in order for parties to enter into Financial Agreements, which if not met, can render those agreements unenforceable.

This is just one example, of many, where parties to an informal agreement later find themselves involved in family law proceedings in relation to property matters, despite the existence of the informal agreement.

As briefly outlined above, there are formal requirements surrounding Financial Agreements and those formal requirements, along with other factors, have resulted in a number of recent challenges to set aside Financial Agreements in property matters being successful.