Binding Financial Agreements vs Consent Orders
Upon the breakdown of a marriage or de facto relationship parties have two main ways to resolve property and spousal maintenance matters by agreement under the Family Law Act. These are by way of a Financial Agreement and by way of Consent Orders.
Parties that make a Financial Agreement are contracting out of the court’s jurisdiction and out of the discretionary jurisdiction of the Family Law Act. An agreement under this mechanism provides for parties to draft their own outcomes of how property is divided.
Financial Agreements can be made prior to marriage (pre-nuptial) (s90B), during a marriage (s90C) and following a divorce (s90D). Similarly, a Financial Agreement can be made prior to entering into a de facto relationship (contemplating a de facto relationship) (S90UB), during a de facto relationship (s90UC) and following the breakdown of the de facto relationship (s90UD)
Financial Agreements can also deal with spousal maintenance matters.
In each of these types of Financial Agreements, the parties are agreeing as to how their assets, liabilities, superannuation entitlements, financial resources and spousal maintenance matters are to be dealt with in the event of their separation.
When is a Financial Agreement binding?
A Financial Agreement is a technical legal document drafted pursuant to the Family Law Act. Financial Agreements are binding when:
- The agreement is signed by all parties.
- Before signing the agreement, each spouse was provided with independent legal advice about the effect of the agreement on the rights of that party and about advantages and disadvantages, at the time the advice was provided to that party of making the agreement.
- The party is provided with the other persons signed statement by their legal practitioner (whether before or after signing the agreement).
- The agreement has not been terminated or set aside by the court.
- A court is satisfied that it would be unjust and inequitable if the agreement were not binding on the spouse parties disregarding any changes in circumstances from the time the agreement was made and the court makes an order declaring the agreement is binding on the parties and it has not been terminated or set aside by a court.
When can a Financial Agreement be set aside?
Section 90K and 90UM set out the basis for a Financial Agreement to be set aside by a court in future. Generally speaking, a Financial Agreement is entered into when the agreement is ‘not just and equitable’, which is the test in property settlement proceedings that a judicial officer must be satisfied with prior to making final orders. Given this and the technical nature of Financial Agreements, it is required that each party obtain independent legal advice prior to entering into the agreement. This ensures that whilst agreements may not be ‘just and equitable’, each party has been advised of their own rights and entitlements and have properly entered into the agreement after receipt of such independent legal advice.
A major benefit of a Financial Agreement is that it can exclude the other party from seeking spousal maintenance. This can only occur if neither party is dependent on an income-tested benefit or pension. Agreements to exclude spousal maintenance are usually made on a mutual basis. A court order cannot ever provide this outcome. Further, should an order for spousal maintenance be made by the court, either party can seek to vary that order at any point in the future.
Under the Family Law Act, a party has the ability to seek spousal maintenance from the other party up until 12-months following the date a Divorce Order takes effect or within 2-years of the separation of a de facto relationship. Dependent on parties’ circumstances, an agreement of this nature can have significant value and future peace of mind.
Consent Orders are orders made by the agreement of both parties and sent to the court administratively for consideration of a Registrar of the Family Court of Australia. The Registrar will review the Application for Consent Orders which contains personal information about the parties and information as to the assets, liabilities, superannuation, and financial resources of the parties available for division, the contributions made by the parties throughout the relationship and future needs factors. The Registrar will then consider the matter in chambers and if they are satisfied that orders are just and equitable in all of the circumstances, the orders will be approved and made as Final Orders and sealed by the court. Orders made in this manner have the same effect as orders made by a Judge following a final hearing.
Whilst each judicial officer has discretion when determining a final outcome in a matter, there is usually a range of likely outcomes. This will also depend on how evidence ultimately falls on a final basis as to what findings may be made and the ultimate outcome. The review of orders by a Registrar ensures that the agreement reached by the parties and proposed by consent is within the range of likely outcomes.
Following the breakdown of a relationship, parties have one opportunity to make property settlement adjustment orders under section 79 or 90SM of the Family Law Act. Both of these sections have an aim to end the financial relationship of both parties (section 81 and section 90ST). Generally speaking, negotiations as to how an agreement is ultimately reached by the parties is made in the context of what a court would do on a final basis pursuant to the Family Law Act and considering the range of likely outcomes.
When can consent orders be set aside?
The court may, in its discretion, vary or set the orders aside and if it considers it appropriate make another order under Section 79 or 90SM in substitution of the order so set aside. Court orders have limited methods for being set aside, which are set out under section 79A with respect to breakdowns of marriages and section 90SN with respect de facto relationships. Financial orders may be set aside if the court is satisfied that:
- There has been a miscarriage of justice because of fraud, duress, suppression of evidence (including failure to disclose relevant information), giving of false evidence or any other circumstance; or
- In the circumstances that has arisen since the order was made, it is impracticable for all or part of the order to be carried out;
- A person has defaulted in carrying out an obligation imposed on them by the order and in the circumstances that have arisen as a result, it is just and equitable to vary the order or to set the order aside and make another order; or
- Exceptional circumstances relating to the care of children have arisen since the making of the order, menaing a party will suffer hardship if the court does not vary or set aside the order; or
- A proceeds of crime order has been made covering property of a party, or a proceeds of crime order has been made against a party.
Given the various circumstances to set aside a Financial Agreement or Orders, it is important parties are fully aware of their obligations of full and frank financial disclosure when entering into either of these agreements.
Under the Family Law Act following the separation of the parties obligation of full and frank financial disclosure commences with respect to pre action procedures for property matters and any proceedings commenced under the Act. Each party is required to provide certain information as to their financial circumstances. In preparing an Application for Consent Orders for the court to consider, each party must execute a Statement of Truth which includes confirmation that the party has fully disclosed their financial circumstances.
Each of these types of agreements have their place and purpose in the resolution of family law issues, either at the commencement or cessation of a relationship. The benefit of reaching agreement under either of these mechanisms is that the parties have control of the outcome in terms of, for example providing extended periods for parties to refinance property, parties being given opportunities to retain assets in certain structures or parties to retain more of one type of asset than another by agreement for the benefit of both parties for example if children are residing in the family home and if superannuation entitlements may be of more value to one party.
If you require legal advice or representation in any legal matter, please contact Armstrong Legal.