Binding Financial Agreements v Consent Orders
There are two different ways that parties who have separated or divorced can reach a property settlement without requiring a court to decide how to divide property between them. The first option is to enter into a binding financial agreement. The second option is to make an agreement with your ex-partner, put this in writing and then apply to the court to have it accept it by way of a consent order. This article discusses the merits of binding financial agreements vs consent orders.
Binding financial agreements
Under the Family Law Act 1975, for a binding financial agreement to be enforceable, the following requirements must be met:
- A binding financial agreement must be written and signed by both parties to a relationship or former relationship;
- The binding financial agreement must be executed when parties are entering into a marriage or de facto relationship, while they are married or in a de facto relationship or after they have separated or divorced;
- Before the binding financial agreement is signed, each party must obtain legal advice independently where they must be advised on the pros and cons of entering into the agreement and their rights with respect to the agreement. The binding financial agreement must state this has occurred;
- The legal practitioners providing advice to the parties of the agreement must provide their clients with a signed statement confirming that the abovementioned advice was given;
- The legal practitioners’ statements must be given to the other parties or their legal representatives;
- The binding financial agreement has not been ended or set aside by a court;
- Includes a declaration that separation has taken place unless the agreement is made after a divorce.
Advantages of binding financial agreements
Some advantages of entering into a binding financial agreement include:
- Binding financial agreements can be written before a relationship is entered into or during a relationship, which means it can be created when the parties to the relationship are on good terms with one another. This can mean that the agreement is more likely to reflect what the parties believe is reasonable. It can also mean that an agreement is reached more quickly than it would if there was animosity between the couple, as there most likely would be after a relationship breakdown;
- A binding financial agreement can provide peace of mind to a substantially wealthier party in a relationship that their partner is not only in the relationship for monetary reasons;
- Binding financial agreements can also provide reassurance for parties with a history of broken relationships where property settlements were difficult.
Disadvantages of binding financial agreements
Some of the disadvantages or risks of entering into a binding financial agreement include:
- If you want to enter into one of these agreements while the relationship is still afoot, it may be a difficult topic to broach with your partner and could lead to some conflict. Your partner may see it as an indication that you are not fully committed to the relationship or are only concerned with your own interests. They may see no advantage to themselves in entering into such an agreement.
- Binding financial agreements often end up being less advantageous to one party if all circumstances are not properly taken into account. A court will not set aside a binding financial agreement simply because for one party it is unfair;
- It will most probably be quite expensive to have a binding financial agreement properly drafted and executed, especially if there is a lot of property that has to be considered. Also, both parties to the agreement need to obtain independent legal advice, and this means paying additional fees;
- There is not much case law that considers binding financial agreements and when they may be set aside. This means there is some uncertainty that surrounds them.
Consent orders for property settlement pros and cons
Property settlements made by way of consent orders are the most popular and the most affordable way to distribute property after a separation or divorce in Australia. The main advantage of completing a property settlement this way is that it does not require lawyer engagement, and this means that the cost of settling property interests in this way is much lower. In fact, parties settling property interests in this way may not even have to appear in a courtroom. An application can be completed and sent to the court. This can then be consented to by the court in the parties’ absence.
The disadvantage of making property settlements in this way is that, without professional advice, there is a chance that not everything will be properly taken into account. This means that one or both parties may end up with a bad settlement deal. Also, a court may not consent to a property settlement that they feel has not addressed all issues or is unfair or inequitable. This means that the parties may need to start again and obtain legal advice to reach an enforceable property settlement. This will mean more time and money will have to be spent.
Although legal advice does not have to be obtained before an application can be made for a consent order, this does not mean it cannot be obtained. It is advisable that legal advice be obtained before applying for a consent order.
So which is more appropriate – binding financial agreements or consent orders?
The pros and cons of each of the pathways to property settlement will need to be considered when determining what is the best option for a particular situation. It may be that consent orders are appropriate where the division of assets is simple, whereas a binding financial agreement may be more appropriate where the property pool is large and complex, or when parties wish to formalise an agreement about what should happen in the event of a relationship breakdown before or during a relationship.
If you require legal advice or representation in any legal matter, please contact Armstrong Legal.