Why You Should Formalise Your Property Settlement — Even If It's Amicable
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People often ask… “We have agreed on everything, why do I need to formalise my property settlement?”
It is really positive if you and your ex have managed to agree on a property settlement together on an amicable basis. Ultimately, it is always best to formalise your property settlement, even if the parties are amicable and all is agreed.
Not formalising your property settlement can come with several risks that could considerably affect your future.
“We have put it in writing, and even got people to witness our signatures” – That’s great! But unfortunately, still not binding!
There are only two ways in which you can formalise a financial/property settlement to protect you from the risks outlined below. These are either a Binding Financial Agreement, or through an Application for Consent Orders.
A Binding Financial Agreement is the only way that parties can formalise their property settlement without having the Court’s involved. It requires the parties to each obtain their own independent legal advice in relation to the Agreement regarding their rights, as well as the advantages and disadvantages of entering into the Agreement. So long as both parties have received the appropriate advice and all the legal requirements are met, this will be binding on both parties.
An Application for Consent Orders requires the parties to complete two documents being an Application form, and a proposed Minute of Orders. These documents are then filed with the Federal Circuit and Family Court of Australia. The parties are not required to attend Court, however, the Court reviews the documents to ensure that the proposed Orders are just and equitable and if all is in order, they will stamp the proposed Minute of Orders with the Court seal, and these will be come binding. Parties are not required to have their own lawyers for this option; however, we suggest having a lawyer draft the documents to ensure a more seamless process.
If you have not done either of the above, then you are at risk. These risks can include:
- Enforcement: Informal agreements are not legally binding and cannot be enforced by the Court. If one party fails to comply with or do what is required by the informal agreement, there are limited ways that the other party can enforce the agreement.
- Disputes: It is possible that a dispute will arise between you and your former partner/spouse about what was actually agreed to. If it was never written down then there may be a miscommunication or misunderstanding about what was agreed. In addition, there may be things that you may not have considered at the time that could start a dispute down the track.
- Future Claims: You expose yourself to the risk of your former partner/spouse making a claim on the other’s property in the future. For example, if you are to grow your property portfolio post separation, these new assets could form part of a property settlement claim. This can also have considerable implications if one party has entered into a new relationship and together, they combine their resources to purchase new assets as a couple. These new assets may be taken into account and form part of the property pool should your former partner/spouse commence proceedings. Your new partner may also find themselves a party to the proceedings
- Change in circumstances: Either you or the other party’s financial circumstances may substantially change either for better or for worse. This can include a greater income, additional assets, health issues, accumulation of debt. All of which would be considered and taken into account should a formal property settlement be pursued at a later date.
- Bankruptcy: If one party becomes bankrupt, the other party’s assets may be at risk if a property settlement has not been formalised.
- Joint Debts: If there are debts in joint names and one party fails to make the agreed upon payments, there is nothing to stop creditors chasing the ‘non-liable’ party for payment.
- Your Estate: Your former partner/spouse may be entitled to make a claim on your Estate once you pass away, and/or they may be considered the primary beneficiary especially if you were to pass away without at Will.
- Superannuation: If you have agreed to split one parties superannuation, this cannot be divided without formal documentation.
- Tax Implications: There may be tax implications that arise from your informal property settlement, that without formal documentation could have a significant impact on you or your former partner/spouse. This could result in one party bearing all of the Capital Gains Tax from the sale of a relationship property for example.
- Inheritance and Windfalls: If a party received an inheritance or windfall after separation but a property settlement has not been formalised, then the other party may be able to make a claim to receive a portion of it.
- Certainty and Closure: Without a formalised property settlement, parties will not have the certainty and closure to move on from the relationship. Whilst there are time-limits in place under the Family Law Act 1975 (Cth) for parties to make a claim to the Court to complete a property settlement, these can be overcome if certain criteria are met, as such, these time-limits to not provide guaranteed protection.
If you would like some more information, or assistance with formalising your property settlement please contact our office and arrange an appointment with one of our Family Lawyers.
Disclaimer: The information in this post is general in nature. This does not constitute legal advice and should not be relied on as such. Please contact one of our Lawyers if you are seeking advice about a specific legal matter.
