Separated couples are often able to reach an agreement about how they wish to divide their assets. In most circumstances, it is in the interest of each party to formalise the agreement reached. In simple terms, formalising an agreement means taking steps to ensure that the agreement is binding and enforceable. If done properly, this ensures that the parties are able to “draw a line in the sand” about their financial relationship. It prevents either party from coming back for more money or assets from the other in the future.
There are sometimes horror stories when separated spouses do not formalise their financial separation. An example is the decision of Damiani. The parties separated but did not divorce. Fourteen years after their separation, one spouse applied for a property settlement. The other spouse’s assets and business had been worth about $1,000,000 at separation. They had grown to about $4,000,000 by the Court hearing 14 years later. The Applicant who would have received about $100,000 at separation was awarded over $1,300,000.
A small, once off “insurance premium” of a few thousand dollars in legal fees may give great peace of mind.
There are two options to legally formalise an agreement:-
- Consent Orders; or
- A Financial Agreement.
Generally, it is preferable for parties to enter into Consent Orders to be filed with the Family Law Courts. This involves drafting two documents to be filed with the Family Court. Once lodged, the documents will be considered by a Registrar of the Court. The parties do not need to attend Court. Assuming that the Registrar considers that the agreement is fair and appropriate given the specific circumstances of the relationship, the Registrar will make binding Court Orders in the agreed terms.
In some situations, it may be preferable for the parties to enter into a Financial Agreement. A Financial Agreement is prepared by lawyers. It is essentially a contract entered into between couples. It seeks to formalise the agreement reached by the parties and prevent either party from making an Application to the Family Court. Each of the parties must receive independent legal advice about the Financial Agreement. If drafted carefully, the Financial Agreement should act as a bar to the Court making any Orders inconsistent with it.
In most situations Consent Orders are preferable. They are generally cheaper and easier to prepare. It is important that parties seek legal advice about the best approach for their particular circumstances.