There are various methods of dividing property between parties to a relationship, whether matrimonial or de facto. Though the parties may reside in different countries, as long as one party is an Australian citizen, then the appropriate method of documenting and finalising a property settlement by agreement would be by way of a court order (consent orders) or by financial agreement.
The key sections of the Family Law Act, when a court is determining property settlement and spousal maintenance, are Sections 72, 74, 75, 79 and 81.
In the event that the matter can't be resolved by negotiation, proceedings may need to be commenced to have property settlement and spousal maintenance matters resolved by the court.
We always advise our clients they must ensure that, whatever division of property is reached between them and their former spouse, there can be no future claim to either property or spousal maintenance.
1. Settling property matters by Agreement
An agreed property settlement can be documented by way of consent orders, approved by an appropriate court, or a binding financial agreement.
The advantages and disadvantages associated with consent orders and financial agreements are as follows.
Advantages of consent orders
- Consent orders provide greater certainty between the parties as they set out, within the application, the same criteria that the court applies when determining a contested property application. An application for consent orders specifically considers the relevant sections of the Family Law Act regarding property settlement and spousal maintenance issues as noted above.
- Consent orders must be submitted to the court for approval. This procedure is to ensure that the orders made are just and equitable as between the parties.
- Consent orders remain with the court and are allocated a specific case number. They therefore provide a record of any settlement reached between the parties, which can be easily accessed should the need arise at some time in the future.
- Consent orders, given their clarity and procedural requirements, are often easier to enforce should a matter arise in the future as to enforcement or interpretation of the orders themselves.
Disadvantages of consent orders
Some of the disadvantages of consent orders may include the following:
- Once the orders are submitted to the court, unless the court is satisfied that the consent orders are just and equitable as between the parties, the court may refuse to make the orders. The could lead to both parties incurring additional legal costs as the orders will need to be redrafted and resubmitted to the court for approval.
- Consent orders, which are drafted in circumstances where proceedings have not already been brought before a court for determination, may result in one party failing to disclose significant assets (despite full and frank disclosure obligations), which they have hidden from the other party throughout the course of their relationship, thereby resulting in an inequitable result. (However, we don't advise that consent orders be signed until such time as complete financial disclosure has been made between the parties.)
- Despite any property settlement reached between the parties, consent orders leave an option open for a party in the future to make an application for spousal maintenance, despite any property settlement reached. (It's therefore preferable that any agreement, as to either a mutual or sole release of an obligation to claim spousal maintenance from the other party in the future, should be documented in a separate binding financial agreement. This, however, has the effect of increasing legal costs associated with the drafting of a further agreement, in addition to the consent orders, to ensure that both parties are protected from claims by the other in the future.)
- Further, consent orders don't usually document any agreement reached with respect to child support. Again, should an agreement be reached between the parties in relation to child support matters, it's preferable to document this in a separate child support agreement.
- Some parties prefer to keep their settlement private rather than have it available on a court file, should issues arise in the future which require the revisiting of any such settlement.
Advantages of a financial agreement
- The main advantage of a financial agreement is that judicial approval or lodgement at a court is not required for the agreement to be binding.
There is no requirement that the terms of the agreement must be just and equitable or proper and reasonable. This agreement is deemed to be binding and enforceable if amongst other things, the following requirements of the Family Law Act are complied with:
- the agreement is signed by all parties; and
- before signing the agreement, each party was provided with independent legal advice from a legal practitioner about the effect of signing the agreement, and the advantages and disadvantages, to that party of making the agreement; and,
- either before or after signing the agreement, each party was provided with a signed statement by the legal practitioner stating that the advice referred to was provided to that party (whether or not the statement is annexed to the agreement).
Therefore, with competent legal practitioners preparing and settling the agreement between the parties, and ensuring that the requirements of the Act are complied with, the agreement should be finalised in a shorter time period than consent orders.
The binding agreement is more flexible in its terms and can include such matters as:
- property settlement;
- child support;
- superannuation; and
- spousal maintenance.
- There is no requirement for financial disclosure by either of the parties (however, we would advise our clients not to sign an agreement until such time as complete financial disclosure has been made).
- There is greater freedom to negotiate a deal outside of the usual terms required by the court in effecting a family law property settlement or spousal maintenance order.
Disadvantages of a financial agreement
- There is no official register for financial agreements. Parties must ensure that the original is stored in a safe place and, if it is lost, that may be problematic should an issue arise in the future which requires the court’s intervention.
- If the original agreement can't be located by a party, enforcement of the agreement may be complicated by this factor.
- Enforcement of a financial agreement may be more difficult than consent orders as there is no requirement that the agreement must be just and equitable in its terms and therefore the court may be reluctant to enforce the terms of the agreement if it deems the particular term to be unjust and/or inequitable.
- There is inadequate protection for a party who may be persuaded by the other party to accept a bad deal.
2. Spousal maintenance
- In addition to the division of property, the court has the power, upon the breakdown of a relationship, to make orders for spousal maintenance both interim and/or final orders; more commonly known as ongoing payments by one spouse to the other. Any settlement reached regarding spousal maintenance can also be documented in a financial agreement.
The matters the court looks at when determining an application for spousal maintenance are essentially:
- one spouse’s ability to pay the other spouse ongoing spousal maintenance; and
- the needs of the spouse who is seeking spousal maintenance.
- In circumstances where there is a substantial division of assets pursuant to a property settlement, and if the party seeking spousal maintenance has the ability to work or indeed receive an adequate income from any property settlement reached, then that party may not be successful in any spousal maintenance claim on a final basis.
- If there are children of the relationship and one party is prepared to and/or is already paying significant child support, the question the court would look at is whether the party seeking the payment of spousal maintenance requires additional financial assistance to maintain a reasonable standard of living and also whether the payor party can actually afford to pay the amount requested in addition to their other usual living expenses and financial commitments.
Ultimately, these matters are determined on a case by case and their unique and specific circumstances.