“My former spouse and I have decided how we will divide our assets. Do we really need to see lawyers and have a formal agreement in place if we can agree on the property division ourselves?”
This question is frequently asked by individuals at the early stages of separation, especially when both parties remain amicable.
For many couples, the goal is to finalise a property settlement quickly and cost-effectively. While it might seem convenient to agree on an informal property settlement, relying on such an agreement can lead to significant legal and financial risks.
Although legally you can decide to informally divide your assets with your spouse, it is strongly recommended to formalise the agreement. Additionally, it is important to note the differences under the Family Law Act (1975) between property settlements for parties in a de facto relationship and those in a marriage.
Types of Formal Property Settlement Agreements
To protect your financial interests and ensure your agreement is legally binding, property settlements should be formalised through either a Binding Financial Agreement or Consent Orders filed with the Court.
Binding Financial Agreements
Binding Financial Agreements (BFA) are legally binding contracts between parties in a marriage or de facto relationship. Often referred to as a “pre-nup” when entered at the start of a relationship, these agreements can also be made after a relationship or marriage ends.
It’s crucial that these agreements are drafted correctly according to the Family Law Act (1975); otherwise, they can be set aside by the Family Court.
While Binding Financial Agreements may be more expensive and require each party to have their own lawyer, they offer greater flexibility, particularly in complex or large asset pools, and can provide more privacy than Consent Orders. However, both parties must make full and frank financial disclosure to avoid the risk of the agreement being overturned.
Consent Orders
Consent Orders are filed with the Court and must be fair and reasonable for the Court to approve them. Although parties can file these orders without a lawyer, seeking legal advice is advisable. Consent Orders can be used for both financial and parenting matters, unlike Binding Financial Agreements. They are typically simpler, cheaper, and under the scrutiny of the Court, making them more easily enforceable.
The Risks of Informal Property Settlements
Choosing an informal property settlement might seem appealing, particularly if both parties are in agreement and wish to avoid legal fees. However, the long-term risks far outweigh the short-term savings:
- Non-Legally Binding: Informal property settlements are not legally enforceable, meaning a party cannot be compelled to comply.
- Potential for Future Claims: There is a risk that a former spouse may seek further adjustments through the Court after an informal settlement.
- Inability to Divide Superannuation: Superannuation cannot be divided without a formal property settlement.
- Inheritance and Debt Risks: Inheritances or significant debts incurred before a formal property settlement can be included in the overall property pool if one party seeks an adjustment from the Court.
- Implications in the Event of Death: If one party dies without a formal property settlement, there may be complications in asset division, even if the former spouse is not mentioned in the Will.
Understanding the Time Limits
For married couples, once divorced, they have 12 months to finalise their property settlement or to commence proceedings in court. If separated but not divorced, this time limit does not start until the divorce is finalised. In contrast, de facto couples have 2 years from the date of separation to finalise their property settlement or commence proceedings.
If the time limit has expired, proceedings can still be commenced with the consent of both parties or with permission from the Court. The Court may grant permission if denying it would cause hardship to a party or child.
Why You Should Avoid Informal Agreements
While it may be tempting to settle matters informally with your former spouse, it is highly recommended to seek advice from a reputable family lawyer. This ensures your property interests are protected and that the settlement is legally binding and enforceable.
At Matthies Lawyers, we specialise in family law and are here to guide you through the property settlement process. Our expert family lawyers in Melbourne proudly serve clients in South Yarra, Toorak, Windsor, Prahran, Armadale, and Richmond.
Contact us today for professional legal advice and support or call +61 3 8692 2517.
Kate Scolyer – Solicitor – Matthies Lawyers
Disclaimer: This article contains general information only and is not intended to be a substitute for obtaining legal advice.