Why You Should Formalise a Property Settlement After Separation

My ex and I have agreed to sell our house and split the proceeds 50/50. Do I really need legal advice?

Reaching an informal agreement with your former partner about how to divide your property does not necessarily bring your financial relationship to an end.

Even where you agree about who will keep the family home, savings, investments, superannuation or other assets, an informal arrangement may not be legally enforceable. It may also leave either party exposed to a future property claim if the agreement is not properly documented.

In Australia, a property settlement can generally be formalised through:

1. Consent Orders approved by the Federal Circuit and Family Court of Australia; or
2. A Binding Financial Agreement.

Obtaining legal advice before agreeing to a settlement can help you understand your entitlements, avoid hidden financial risks and choose the most suitable way to make the agreement legally binding.

Is an informal property settlement legally binding?

An informal property settlement is an agreement reached between former partners about how their assets, liabilities and superannuation will be divided.

The agreement may be made verbally, recorded in emails or written in a document signed by both parties. However, simply writing down and signing an agreement will not usually provide the same legal protection as Consent Orders or a properly prepared Binding Financial Agreement.

This can be the case even where the parties have already acted on the agreement. For example, transferring ownership of a property from one person to another does not necessarily prevent a future property settlement claim.

An informal agreement may also be difficult to enforce if one person changes their mind, refuses to complete a transfer or does not comply with what was agreed.

Why should you obtain legal advice before agreeing to a settlement?

It is not uncommon for separating couples to reach an agreement without fully understanding their legal rights or the financial effect of the proposed settlement.

Property settlements under the Family Law Act 1975 are determined according to the individual facts and circumstances of each relationship. There is no automatic formula and assets are not necessarily divided equally.

The appropriate outcome may depend on matters including:

• The assets, liabilities, superannuation and financial resources of each party
• The financial and non-financial contributions made by each person
• Contributions as a parent or homemaker
• Assets owned at the beginning of the relationship
• Inheritances, gifts or other significant financial contributions
• Each party’s income and earning capacity
• The future financial needs of each person
• The care arrangements for any children
• Whether the proposed outcome is just and equitable

An agreement that initially appears fair may have unintended tax, superannuation, lending or long-term financial consequences.

Obtaining specialist family law advice before agreeing to a settlement allows you to make an informed decision based on your circumstances rather than assumptions about what happened in another person’s divorce or separation.

What happens if you do not formalise a property settlement?

Failing to formally document a property settlement can expose both parties to significant legal and financial risks.

A future property claim may still be possible

Until a property settlement has been formally finalised, there may be a risk that either party can seek a further property settlement in the future.

Depending on the circumstances, this can arise several years after separation.

This becomes particularly complicated where the parties’ financial positions have changed significantly or where assets have increased or decreased in value.

Assets acquired after separation may become relevant

Property settlement generally considers the parties’ financial circumstances at the time the matter is determined, not necessarily only what they owned on the date of separation.

This means that assets acquired after separation may potentially become relevant until a property settlement is finalised.

Depending on the circumstances, this could include:

• A property purchased after separation
• An inheritance received after separation
• Increased superannuation
• Shares or investments
• Business interests
• Savings accumulated after separation
• Other changes in either party’s financial position

How a particular asset will be treated depends on the individual circumstances and legal advice should be obtained.

Your former partner may change their mind

People change their position for many reasons.

A former partner may reconsider an informal agreement following:

• Re-partnering
• A major illness or health issue
• A change in employment or earning capacity
• The receipt of an inheritance
• A change in the value of property or investments
• Financial hardship
• A breakdown in communication
• A simple change of heart

Without a formal settlement, it may be difficult to compel the other party to follow the original agreement.

You may remain financially connected

One purpose of a formal property settlement is to bring the parties’ financial relationship to an end as far as practicable.

Without formal documentation, uncertainty may remain. This can cause difficulties where one person wants to buy another property, obtain finance, restructure a business, divide superannuation or move forward with their financial life.

How do you formalise a property settlement?

There are generally two ways to formally document an agreed property settlement in Australia:

• Consent Orders
• A Binding Financial Agreement

The most appropriate option will depend on your circumstances, the terms of the settlement and the type of assets involved.

What are Consent Orders?

Consent Orders are Court orders made by agreement between the parties.

Separating couples can jointly apply to the Federal Circuit and Family Court of Australia for Consent Orders without attending a Court hearing in most straightforward matters.

The application must provide detailed information about the parties’ financial circumstances, including:

• Assets
• Liabilities
• Superannuation interests
• Financial resources
• The proposed division of property
• The parties’ respective contributions
• Their current and future circumstances

The Court must be satisfied that the proposed property settlement is just and equitable before making the orders.

Once approved, the Consent Orders become legally binding and enforceable.

If the application is incomplete, unclear or does not provide enough information for the Court to assess the proposed settlement, the Court may request further information or decline to make the orders.

A family lawyer can help ensure the application and proposed orders accurately reflect the agreement and comply with the relevant legal requirements.

What is a Binding Financial Agreement?

A Binding Financial Agreement is a private agreement made under the Family Law Act 1975.

A Binding Financial Agreement can be used to formalise the division of property after the breakdown of a marriage or de facto relationship.

Unlike Consent Orders, a Binding Financial Agreement is not reviewed or approved by the Court when it is made.

Strict legal requirements apply. In particular, each party must receive independent legal advice from their own lawyer about matters including:

• The effect of the agreement on their rights
• The advantages of entering into the agreement
• The disadvantages of entering into the agreement

Each lawyer must provide the required confirmation that the advice was given.

Binding Financial Agreements can be useful in certain circumstances, but they must be carefully prepared. An agreement may be vulnerable to challenge if the legal requirements are not properly followed or if other circumstances justify it being set aside.

Consent Orders vs Binding Financial Agreements

The best method of formalising a property settlement depends on the circumstances.

A lawyer can advise which option is more suitable for your circumstances.

Do you need Consent Orders if you agree on everything?

Reaching an agreement is an important step, but agreement alone does not necessarily provide legal finality.

Even if you and your former partner agree on every aspect of the property settlement, it is generally sensible to formalise the arrangement through Consent Orders or a Binding Financial Agreement.

Formalising the agreement can:

• Make the settlement legally enforceable
• Clearly record each party’s obligations
• Reduce the risk of future disputes
• Assist with the transfer or sale of property
• Allow superannuation splitting arrangements to be implemented
• Provide greater certainty when applying for finance
• Help bring the financial relationship to an end
• Give both parties confidence to move forward

Can you write your own property settlement agreement?

You and your former partner can record the terms you have discussed. However, a document prepared and signed privately will not usually provide the same protection as Consent Orders or a Binding Financial Agreement.

There is also a risk that a privately prepared document may:

• Use unclear or incomplete wording
• Fail to deal with an important asset or liability
• Be difficult to enforce
• Create unintended tax or financial consequences
• Fail to properly implement a superannuation split
• Leave open the possibility of a future claim
• Not satisfy the legal requirements of a Binding Financial Agreement

Before signing or implementing any property settlement arrangement, it is prudent to obtain specialist legal advice.

What are the time limits for property settlements?

Time limits apply to property settlement applications.

Time limit after divorce

For married couples, an application for a property settlement must generally be commenced within 12 months after a divorce becomes final.

Separation and divorce are different legal processes. You do not need to wait until you are divorced to negotiate or formalise a property settlement.

Time limit after a de facto separation

For former de facto partners, an application for a property settlement must generally be commenced within two years of the date of separation.

What happens if the time limit has passed?

In some circumstances, the Court may give permission for an application to be commenced outside the usual time limit.

However, permission is not automatic. A late application can be more difficult, expensive and uncertain.

You should obtain legal advice promptly if a time limit is approaching or may already have expired.

Can an ex make a property claim years after separation?

Potentially, depending on the circumstances.

Separation itself does not automatically finalise the parties’ financial relationship. Where no formal property settlement has been completed, there may be a risk of a future claim.

Relevant time limits may apply, particularly after a divorce becomes final or following the breakdown of a de facto relationship.

Because exceptions can sometimes be available, it is unsafe to assume that the passage of time alone prevents a claim.

Formalising a property settlement can provide greater certainty and reduce the risk of future disputes.

Can a property settlement be completed before divorce?

Yes.

A divorce legally ends a marriage, while a property settlement deals with assets, liabilities, superannuation and other financial matters.

You do not need to wait until you are divorced to reach or formalise a property settlement. Many couples complete their property settlement before applying for divorce.

Finalising property matters early can help provide financial certainty and avoid the 12-month time limit that generally begins once a divorce becomes final.

Do both parties need their own lawyer?

Both parties must receive independent legal advice before entering into a Binding Financial Agreement.

For Consent Orders, independent legal advice is not always legally required. However, it is strongly recommended that each person understands their legal rights, the effect of the proposed orders and whether the settlement is appropriate in their circumstances.

One lawyer cannot provide independent legal advice to both parties about the same property settlement.

The importance of formally documenting your agreement

It may seem practical and cost-effective to divide property informally, particularly where the separation is amicable.

However, an informal agreement can leave important matters unresolved and expose both parties to future legal and financial risk.

A properly documented property settlement can:

• Provide certainty about how assets and liabilities will be divided
• Make the agreement legally enforceable
• Reduce the risk of a future property claim
• Address superannuation and property transfers correctly
• Clarify each party’s responsibilities
• Help bring the financial relationship to an end
• Provide peace of mind as both parties move forward

The cost of obtaining advice and formally documenting a settlement is often modest compared with the potential cost of a future dispute.

Speak with a property settlement lawyer

Hulse Family Law assists clients in Wollongong, the Illawarra, Berry and across the Shoalhaven with property settlements, Consent Orders and Binding Financial Agreements.

We provide straightforward advice about your rights, the proposed division of property and the most appropriate way to formally document an agreement.

If you have reached an informal agreement, are currently negotiating a settlement or want to understand your property settlement options, contact Hulse Family Law to arrange a confidential discussion.

Frequently asked questions

Is a signed property settlement agreement legally binding?

A document signed privately by both parties will not usually provide the same protection as Consent Orders or a Binding Financial Agreement. Legal advice should be obtained before relying on or implementing an informal agreement.

Do I need Consent Orders if my former partner and I agree?

Even where both parties agree, it is generally prudent to formalise the settlement. Consent Orders can make the arrangement legally binding and enforceable, while reducing the risk of future claims or disagreements.

Can my ex claim assets I acquired after separation?

Assets acquired after separation may potentially become relevant to a property settlement until the parties’ financial relationship is formally resolved. The treatment of a particular asset will depend on the circumstances.

What is the difference between divorce and property settlement?

Divorce legally ends a marriage. A property settlement deals with the division of assets, liabilities, superannuation and financial resources. They are separate legal processes.

Do I have to go to Court to obtain Consent Orders?

In most agreed property matters, the application is considered by the Court based on the documents filed and the parties do not need to attend a hearing.

Which is better: Consent Orders or a Binding Financial Agreement?

Neither option is automatically better. The appropriate method depends on the terms of the settlement, the parties’ circumstances and the legal or financial issues involved.

Can we formalise a property settlement before getting divorced?

Yes. A property settlement can be negotiated and formalised before a divorce application is made.

What happens if the property settlement time limit has passed?

You may need the Court’s permission to commence an application outside the usual time limit. Permission is not guaranteed, so legal advice should be obtained promptly.