When a relationship breaks down but communication is still amicable, parties can either mutually agree upon the division of the joint matrimonial assets or, alternatively, agree on what the joint matrimonial assets are and then negotiate the division of those assets.
The division of joint matrimonial assets is dealt with under Part VIIIAB of the Family Law Act 1975 (“the Act”) and the agreement to such division can be formalised under Section 90L of the Act by way of a Binding Financial Agreement which is entered into by each party after obtaining independent legal advice so that the Agreement is binding and enforceable and on the basis that the parties are eligible (can support themselves without receipt of a pension) or by way of Consent Orders which are filed in the Family Court.
Under the proposed agreement or Consent Orders each party shall contract out of the provisions of the Family Law Act 1975 that would otherwise determine the division of your asset pool in the event of the breakdown of your relationship. This includes real property, chattels and superannuation as well as in some cases, a party’s entitlements to spousal maintenance.
In the event that you and your partner did not have a binding financial agreement or Consent Orders and were unable to reach a resolution by agreement in the event of breakdown of your relationship, the division of your assets, liabilities, superannuation entitlements and spousal maintenance would be determined by the Family Court applying the terms of the Act.
There is a four step process which the Court would take to determine the appropriate property orders to be made:
- Determining what the asset pool comprises of. Property comprises all assets such as land, money in the bank, furniture, motor vehicles, insurance policies and the like. A superannuation entitlement is not property but can be taken into account and is able to be split between the parties;
- The second step is that the court would look at the contributions made by yourself and your partner during your relationship. This includes ‘non financial contributions’ made to the upbringing of any children of the relationship (including children from previous relationships) and your contributions to the welfare of the family generally, as well as ‘financial contributions’ including assets brought into the relationship and earnings during the relationship;
- After assessing your respective contributions the court would then determine whether there ought to be a loading in either parties favour to reflect ‘needs’. In assessing ‘needs’ the court would look at things such as relative earning capacities, state of health of the parties and the need for the primary carer of the children to provide a suitable home for the children; and
- The fourth step is one whereby the court ensures that in light of the circumstances of the case as a whole, the orders which it makes are ‘just and equitable’, or fair and reasonable in all the circumstances.
Under Sections 72 and 90SE Family Law Act 1975, a party to a marriage or a de facto relationship is liable to maintain the other to the extent that he or she is reasonably able to do so if, and only if, the other partner is unable to support him or herself adequately. The reason for that inability may be:
- Having the care of the child/ren of the relationship under the age of eighteen years; or
- His or her age or physical or mental incapacity for employment; or
- Any other adequate reason.
Such assessments also take into consideration assets held by a party prior to entering into a relationship and whether any joint financial resources were applied for the maintenance or expenses incurred with respect to that asset during the relationship.
In deciding whether a partner is entitled to maintenance and assessing how much maintenance is to be paid, a court will take into account factors relevant to the particular case as set out in sections 75(2) and 90SF(3) Family Law Act 1975.
When can a binding financial agreement be entered into?
Binding financial agreements may be entered into by married or de facto couples. For married people, they can be entered into before marriage, during marriage or after divorce. For de facto couples they can be entered into before entering into a de facto relationship, during a de facto relationship or after the ending of a de facto relationship. It is important to note that an agreement entered into before marriage must be made in anticipation of marriage otherwise the agreement has no effect. It is also important to note that an agreement entered into whilst in a de facto relationship automatically terminates upon marriage if such marriage was not contemplated in the agreement.
For Consent Orders, these are entered into when a relationship is at an end but are filed in the Family Court. It is necessary to ensure that any agreement reached between parties is considered just and equitable so that the Court can seal the Orders reflecting the arrangements between separated parties. This does not mean that you have to appear in Court.
As with Binding Financial Agreements, each party provides disclosure to the other party of all financial resources in their control (bank accounts, superannuation entitlements, benefits of trusts, financial resources etc) so that each party knows exactly the financial situation that the other party is in as well as the future earning capacity of each party which takes into consideration the care of the children of the relationship so that negotiations for a just and equitable division of the joint matrimonial assets are transparent and taken into account.
Nature and effect of your agreement
Pursuant to the Family Law Act 1975, we, as your lawyers are required to certify that we have provided you with independent legal advice as to the following matters:
- The effect of the agreement on your rights; and
- The advantages and disadvantages, at the time that the advice was provided, to you of making the agreement.
By formalising an agreement between parties for the division of the joint matrimonial assets and liabilities by way of a Binding Financial Agreement or by way of Consent Orders can give a party retaining a joint asset (such as real property) the benefit of an exemption of the payment of stamp duty assessed on that share of the property that that party did not have prior to entering into the agreement.
If part of the agreement requires an assignment of one party’s superannuation interests to the other party, steps are taken to provide procedural fairness to the Trustee of the superannuation fund affected to ensure that the assignment of that agreed portion of a party’s fund can be attended to upon the execution of a Binding Financial Agreement or after the sealing by the Court of Consent Orders.
An advantage to entering in a Binding Financial Agreement is that once independent legal advice is provided to each party to the Agreement, procedural fairness provided to the Trustee of the relevant Superannuation Fund, then upon full execution of the Agreement the document is binding and enforceable. A disadvantage is that a Binding Financial Agreement cannot deal with issues concerning children’s arrangements.
An advantage to entering into Consent Orders is that that document can include a property settlement arrangement and orders regarding the care of children and contact arrangements for each parent.
Lawyers can assist you with working out the best agreement for your circumstances.
Written by Sandie Chatterton, Principal Lawyer