So you and your former partner have come to an agreement between the two of you as to how to divide your assets after separation. Firstly, well done! That is a major accomplishment in itself. So where to from here? As lawyers, we are often confronted with the question from clients: why can't my partner and I just document our financial settlement in a letter or an informal separation agreement? There is a simple answer to that question: in Australia when couples who are married or are in a de facto relationship separate there are only two ways you can finalise your family law property settlement to give formal recognition and validity to your agreement.
The first, and traditional means of formalising your property settlement is by entering into Consent Orders. These are normally filed with the Federal Circuit and Family Court of Australia, are usually considered by the Court in the absence of the parties and have the force of court orders once they are made. The second is by entering into a Binding Financial Agreement (BFA), which is the Australian version of a 'Prenup' or 'Prenuptial Agreement' (except in this example it is being entered into at the end of the relationship rather than the beginning). A BFA is not filed with the Court and does not require court approval but does have some very strict formal requirements and requires lawyers to provide certificates certifying that they have given independent legal advice to their client and that they have advised their client of:
The effect of the agreement on their rights; and
The advantages and disadvantages, at the time that the advice was provided, to their client of making the agreement.
Anything else is simply not binding. There are good reasons why you would want to make sure that what you have agreed to with your partner is binding. This includes:
Finality: You want to make sure that the agreement is final and your partner cannot come back for more if they become unhappy with the settlement in the future.
Advice: In the process of formalising your agreement you will receive independent legal advice and or recognition by the court. This will give you peace of mind that you are on the right track and that your settlement is fair and reasonable.
Stamp Duty: If your settlement involves the transfer of property, formalising your agreement in a way that is recognised by the Family Law Act will mean that you do not have to pay stamp duty on the transfer and you might also be able to benefit from CGT roll-over provisions.
Each method of finalising your settlement has its advantages and disadvantages. So what’s the best way to finalise your family law property settlement? Here's a brief comparison of the two:
Binding Financial Agreement (BFA):
Flexibility: BFAs offer more flexibility in terms of what you can agree upon. You and your partner can decide on your own terms without court involvement, which can be particularly useful if you have unique assets or specific arrangements in mind.
Privacy: BFAs are private agreements. They are not filed in court.
Faster: Generally, reaching an agreement through a BFA tends to be faster compared to going through the court system. You have more control over the timeline.
Complexity: Creating a BFA can be legally complex, and it's essential to ensure that it meets all legal requirements. Mistakes in drafting can render the agreement invalid.
Less Oversight: Since there's no court involvement, there's less oversight and protection. If one party doesn't follow the agreement, you may need to go to court to enforce it.
Risk of Challenge: BFA can be challenged if they are not properly drafted, if one party was pressured into signing, or if there's evidence of fraud or deception.
Court-Enforced: Consent Orders are court orders, which means they are legally binding and enforceable. If one party doesn't comply, you can ask the court for help.
Certainty: They provide a clear and legally binding resolution to your property matters, reducing the chances of future disputes.
Less Risk: Consent Orders have a lower risk of being challenged compared to BFAs if properly prepared and agreed upon.
Less Flexibility: Consent Orders require you to follow a specific process and meet certain criteria set by the court. This can limit your flexibility in the agreement.
Court Involvement: You will need to go through the court system, which can be time-consuming and may involve legal fees.
Less Privacy: While there is a high degree of privacy and confidentiality in family law proceedings, court proceedings are generally public, so your financial matters become part of the public record.
In summary, the choice between a Binding Financial Agreement (BFA) and Consent Orders depends on your specific circumstances. BFAs offer more flexibility and privacy but come with potential legal complexity and some risk. Consent Orders are court-enforced and provide greater certainty, but they involve court processes and may be less flexible. It's essential to consult with a family lawyer to determine which option is best for your situation.
If you would like help to work out what is the best way to finalise your property settlement, please feel free to contact our friendly staff to discuss how we may assist you with our services.
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