An interesting, and unfortunate, case came across my desk recently. A couple (let’s call them Bill and Betty) had separated 5 years ago. Wanting to keep things amicable between themselves and their children, they agreed that Bill would buy Betty’s interest in the former matrimonial home, which they agreed was 50%, that they would each keep their own superannuation funds (Bill had $250,00 in his fund, and Betty $50,000 in hers) and that the Betty would make no claim on an inheritance of $300,000 that Bill had received 3 years before the separation, that he had invested in shares in his name. Betty was the primary carer of the parties’ two small children, she was not employed, and Bill earned $150,000 a year. Given those facts, the Family Court would have given Betty 60-65% of the house, equalised the super funds and made an adjustment in Betty’s favour in relation to Bill’s inheritance. A mutual friend drew up an agreement, Bill and Betty signed it and the friend’s wife witnessed their signatures.
All good, thought Bill. He carried out the terms of the agreement, he got on with his life, started a new relationship, had a child with that partner, extended the house with a new mortgage, on top of the one he took to pay Betty out – life was looking rosy. But then……two years after the settlement, Betty got talking to a friend over morning coffee. The friend told Betty about her experience with a property settlement, and it became clear to Betty that Bill had “dudded” her. “But Bill and I signed an agreement – wasn’t that the end of the matter?” Betty asked her friend. “You should go and talk to a Family Lawyer,” the friend said.
So, Betty did. The lawyer explained that the agreement she and Bill had signed “isn’t worth the paper it’s written on,” that Betty had got a very bad deal in the settlement and that negotiations should start with Bill, through the lawyer to get a better settlement.
Of course, Bill wasn’t best pleased to get the letter from Betty’s lawyer, seeking to renegotiate the property settlement. Neither was Bill’s new partner. Eventually, but only after Betty’s lawyer had to issue a Court application against Bill, they negotiated a new settlement – Bill had to sell his house to give Betty a fair settlement, as well as transfer a lot of his superannuation into Betty’s fund.
So, how could this situation have been avoided? There are two ways of achieving a legally binding Family Law property settlement –
Binding Financial Agreement
These are drawn up, usually by one party’s lawyer, after the couple (husband and wife, de facto or same sex) have reached agreement on dividing up their assets, and their liabilities. BFAs, as they are called, can also be used as pre-nuptials and after a couple have started living together – to say what will happen if the relationship breaks down. The main advantage of a BFA is that it does not go anywhere near a court – it’s a private, but legal agreement between the couple. But it must comply with the strict rules of the Family Law Act, including that each party has to be advised about the agreement by an independent lawyer. That means the Bill/Betty agreement, above, could have been turned into a binding BFA, although Betty’s lawyer would have strongly advised her not to sign it, as it was so weighted in Bill’s favour.
Consent Orders made in Court
This is the other way to make the parties’ agreement legally binding. There is no legal requirement for either of them to have a lawyer, but it’s a good idea for one of them to get legal advice, as it’s still a technical process.The major difference between a BFA and Consent Orders is that, with Orders, a Court Registrar carefully scrutinises the proposed Orders, to make sure they are “just and equitable. In other words, that they are similar to what a judge would order if the case went to trial. On those criteria, the Bill/Betty agreement would not have been be approved by the Court. An advantage of Consent Orders is that parenting Orders can be made at the same time by the Court, which is not the case with BFAs.
The moral of the Bill and Betty story then, is that it’s always best to get advice from a Family Lawyer if you are looking to finalise a property agreement between you and you ex, or, indeed, to enter into a pre-nuptial agreement before marriage.