I often get asked by people why they should bother to formalise their property settlement. In many cases they’ve reached an informal agreement with their ex-partner which may be in writing or in other cases might only be verbal.
What problems can arise with informal property settlement agreements?
Such an informal agreement is not binding on either of the parties which means that either of them could change their mind about it at a later date.
In some cases the agreement provides for the transfer of a property to one party who will refinance and pay out a sum of money to the other party. It continues to astound me as to why banks provide finance to people who have not formalised their property settlement.
We still come across cases where the bank has required the parties to sign a statutory declaration that they will abide by the agreement and not come back for more money. As the saying goes, that statutory declaration isn’t worth the paper it’s written on.
We are presently involved in lengthy litigation in the Federal Circuit Court of Australia in respect of an application for property settlement filed by a wife 17 years out of time and nearly 20 years since they separated. The time limit is supposed to be 12 months after divorce.
Whilst the Court has not yet decided whether she will be successful in her claim, this has resulted in each party spending tens of thousands of dollars on legal fees and being stuck in the Court system for two years and it is still not finished.
If the parties had finalised their property settlement by either a Consent Order or a Binding Financial Agreement at the time, it is almost impossible to later change their mind as there are only very limited circumstances in which either of those methods can be set aside.
It is also important to note that when dealing with a property settlement the Court will deal with the assets as at the date of hearing. This means that one party could waste the assets in their possession following separation and may then look to the other party for more money.
Likewise a party could receive an unexpected windfall after separation such as an inheritance, lottery win, redundancy or other such payment. This can have a significant effect on a property settlement and would more than likely result in a much larger payment to the other party.
Our advice is that even in very modest asset pools it is always vital to formalise any agreement with a Consent Order or Binding Financial Agreement. Whilst you may not have much money or assets now, that may well not be the case in a few years’ time when you end up in court because you did not formalise all of the details earlier.