Consent Orders, Financial Agreements and Informal Agreements
- Three ways to document a financial settlement
- Beware of Informal Agreements
- Consent Orders or Financial Agreement?
- Ease of Drafting
- Justice and Equity
- Need for Legal Advice
- Spouse Maintenance
- Parenting Matters
- Page Summary
There are three ways to document a financial settlement reached by mutual agreement between the parties. These are:
- Application for Consent Orders;
- Financial Agreement; or
- Informal Agreement
Let’s deal with the third option first and put it to bed. Lawyers are a risk-adverse lot, and almost always, we will tell you that an informal agreement is not an option. It might be tempting to save on legal fees for drafting, particularly if you and your ex-partner are amicable and trusting. In some States, there are even ways to obtain stamp duty relief that don’t involve formal family law settlements.
However, things change, and what you save on legal fees is nothing compared to what you might lose if you do not formalise your agreement. If your agreement is not formalised, the door is open to either party to approach the Court, seeking Orders to obtain greater financial benefit. Each party has 12 months from the date of divorce or 24 months from the date of a de facto separation to initiate proceedings with the Court. The door doesn’t even close then though, as the Court is able to give ‘leave’ (special permission) to initiate proceedings out of time, in certain circumstances. Parties can be given leave to initiate proceedings years out of time.
So, what if since your informal agreement, one party has won the lottery (lucky them!), inherited property, invested property well and made great returns, or simply saved a good chunk of money?
All those assets are included of the pool of assets available for distribution between the parties, if one of the parties initiates family law proceedings at a later date.
For your financial protection moving forward, or even just for your peace of mind (and ours), you should formalise your agreement. And so, the question with the extensive preamble – How?
An Application for Consent Orders is a thorough Application form, with a Minute of Consent Orders attached, forwarded to the Court for approval. A Financial Agreement is a contract which complies with very specific provisions of the Family Law Act 1975 (Cth), which does not require the Court’s consideration.
Both documents formalise the agreement reached between the parties and dictate what each party must do to carry out that agreement. Both documents provide stamp duty exemptions (you don’t pay stamp duty if you transfer a house or car to the other party). Both documents are final, and enforceable by the Federal Circuit and Family Court of Australia – there is no coming back to the Court for a second bite of the cherry.
So, what is the difference between the two and why should you pick one over the other? To make the best choice, you need to consider a number of factors.
A Financial Agreement is enforceable from the date it is signed by both parties and their lawyers, provided all legislative requirements are met. Consent Orders are enforceable from the date the Court marks them with the Court seal. This could be anywhere from a few days to a few weeks after the Application is submitted to the Court.
If drafted correctly, both documents are enforceable by the Federal and Family Court of Australia. The difference is that it is easier to incorrectly draft a Financial Agreement. To be enforced, a Financial Agreement must abide by strict legal requirements with respect to drafting and the requisite legal advice. The vast majority of Financial Agreements that are set aside, are set aside due to not meeting these requirements.
Why do you care how hard it is for your lawyers to draft your settlement documents? Because the longer it takes, the more it costs.
An Application for Consent Orders is a standard form, with Orders varying in specificity, depending on your family’s needs and the agreement you have reached. Some separated couples need every potential loophole filled, others do not.
The Application is signed and dated by both parties, then lodged with the Court. The Application is then reviewed by a Registrar of the Court. If the Registrar is satisfied the Consent Orders are just and equitable, they mark them with the Court seal, and that’s that. It’s a remarkably easy process and nothing to be afraid of. If done properly, you will not need to step foot in a Court.
As outlined above, Financial Agreements are very precise documents with strict legislative requirements in relation to the content of the document. Consequently, they usually take longer to draft, at a higher cost.
When a Registrar reviews an Application for Consent Orders, they are paying special attention to whether the outcome is just and equitable in all the circumstances of your relationship – including the financial and non-financial contributions made directly or indirectly to the acquisition and maintenance of the assets, and each party’s comparative future needs. A Registrar can only approve the Orders if they are satisfied that they are “Just and Equitable”.
The idea of a Financial Agreement is to leave the Court out of it, and let parties make private contracts between themselves without the need for the Court’s approval. Consequently, the outcome does not need to be ‘just and equitable’. This is often the biggest drawcard of a Financial Agreement and as such, when one is proposed, the other party should carefully consider why is it being proposed.
The Federal Circuit and Family Court of Australia has a duty to finally determine the financial relationships between parties and avoid further proceedings between them.
Consequently, if you and your ex-spouse agree to continue financial relations in some manner (eg run a company together, hold property jointly) then a Registrar is highly unlikely to approve an Application for Consent Orders in those terms.
A Financial Agreement has no such requirement. Even though our advice as lawyers is to avoid ongoing financial relations as much as possible because they are fraught with difficulty, we can draft a Financial Agreement containing such provisions if necessary.
Some people are anti-lawyer. It’s okay, we get it.
You do not necessarily need a witness or legal advice to sign Consent Orders (although of course we recommend it). You don’t even strictly need a lawyer to draft the Application and Consent Orders for you (although again, you really should). Therefore, if you and your partner come to an agreement and want it formalised, an Application for Consent Orders will minimise the time you need to spend in our delightful presence.
Often, one party instructs a lawyer to draft the documents and the other party signs them. Again, we advise you should always at least get some one-off advice before you sign any legal document, but the point is, you don’t have to.
Financial Agreements are quite the opposite. To be binding, each party must obtain independent legal advice, before the Financial Agreement is signed, with respect to the effect of the Financial Agreement on their rights, and the advantages and disadvantages of entering into the Agreement.
You will also need a family law expert to check the document is fully compliant with all the strict drafting requirements, and to decode a lot of the legalese. At the very least, even if the document is bullet proof and requires no amendment, both parties are going to need two appointments with a lawyer and a very long letter of advice.
Both Financial Agreements and Applications for Consent Orders can cover spousal maintenance provisions.
Technically, neither document can include an Order or Clause precluding the payment of spouse maintenance. What they can include, is an Order or Clause that each party pay the other a one-off payment of a comical amount (usually $10), thereby cancelling each other out.
If such a clause is written into a Financial Agreement, then spouse maintenance is limited to that $10 exchange and there is no risk of any further payment of spouse maintenance, unless the Financial Agreement (or that provision) is set aside.
If an Order for spouse maintenance is written into a Minute of Consent Orders, then spouse maintenance is not limited to the amount or time stated. The Court has jurisdiction to amend or revive any spouse maintenance Orders, if certain circumstances are met. That means the Court can impose regular periodic spouse maintenance, at a higher amount, to be paid by one party to the other, despite your agreement.
For the same reason, it is safer to record any agreement for ongoing periodic spouse maintenance in a Financial Agreement. That way it will cease when you agree for it to cease and be limited to the agreed amount.
A Financial Agreement for spouse maintenance is not without its limitations. For a Financial Agreement to be binding with respect to spouse maintenance, both parties must be able to support themselves without an income tested pension at the time the Financial Agreement came into effect.
In the event the parties agree to ongoing periodic spouse maintenance, and the paying party dies or the recipient remarries, the spouse maintenance provision in a Minute of Consent Orders is automatically ceased (unless there are special circumstances). However, there is no similar safeguard for the cessation of spousal maintenance for Financial Agreements, unless a specific clause is included to that effect.
This does not mean that you should formalise your property agreement by way of Financial Agreement just because you want to have certainty about spouse maintenance. You can enter into Consent Orders with respect to the division of property, AND a separate Financial Agreement with respect to Spouse Maintenance. These Spouse Maintenance Financial Agreements are far shorter, more straightforward and cheaper to draft than a Financial Agreement containing a property division.
Financial Agreements do not cover parenting matters – you will need an Application for Consent Orders for that. Again, this does not mean that you should finalise your property agreement by way of Consent Orders just because you also need parenting Orders. You can finalise parenting by way of Consent Orders and finalise property by way of Financial Agreement if you wish. This would usually only occur if you need certainty with respect to spouse maintenance obligations, the property agreement is not necessarily just and equitable, or the property settlement does not finalise the financial relationship between you.
However, if you have finalised both financial and parenting matters simultaneously, and the above three factors do not apply, then an Application for Consent Orders can cover both property settlement and parenting matters whilst a Financial Agreement cannot. Why pay for two documents when you only need one?
As you can see, it is not a simple decision how to formalise your financial settlement in family law. There are traps for young and old players in the area of family law property – you need to use a specialist if you want to avoid them.
While separated families do not always have the luxury of taking the time to make informed decisions in relation to the short-term issues, the above examples illustrate the importance of seeking legal advice and making properly informed decisions in relation to the long-term issues as it could make all the difference in the world, not only for themselves but also for their children.