Legal Information Sheet - Division of Relationship Property and Binding Financial Agreements

Upon the finish of a relationship, there is generally physical and financial property to be divided between the parties.

Things to be divided from a relationship often include:

  • All assets (things you own) held by you and your former partner in joint or separate names such as:  family home, holiday home, cars and boats, household effects from stereos to cups and saucers;
  • personal items like jewellery and clothing;
  •  All assets under your own or your former partner’s control such as a business, superannuation, a share in an extended family business or investment property held under a family trust;
  • All liabilities (things that you owe money on) in joint or separate names such as mortgage debts, credit cards, hire purchase agreements. It may also include property you held in your own name prior to entering into the relationship, or property you have acquired since separation.

There are a few options available to achieve a fair, equitable and simple division of property.

Divide Property by Agreement

The simplest option is where you and your former partner may just decide to divide up all assets and liabilities between you without any assistance or formal written arrangements, however this approach is fraught with danger. Disadvantages include:

  • If you need to transfer real estate or assets such as vehicles into different names, you may incur government charges and fees on the transfer.
  • Informal arrangements are not legally binding. This means that at some future time either of you can pursue further claims in Court. (If one of you does not stick to your informal arrangement you may have to make an application to the Family Court. You must do this within one year from the date your divorce is final if married, or within 2 years from the date your de facto relationship ended).

Binding Financial Agreements

Often the best option is to prepare a Binding Financial Agreement (BFA) which states how your assets, liabilities, resources and other finances - for example, how you are going to acquire and own property, who will pay what living expenses, where weekly wages and income will go etc - will be divided, and is binding on each party.

A Binding Financial Agreement (BFA) refers to a variety of agreements, which can be made before (these are commonly known as 'prenups'), during or after a relationship, and which states how your assets, liabilities, resources and other finances - for example, how you are going to acquire and own property, who will pay what living expenses, where weekly wages and income will go etc - will be divided, in the event you relationship will break down, or has broken down.

A BFA provides security and peace of mind, particularly for parties who have children.

Advantages and Disadvantages of BFAs

  • Making your own rules about financial division when you are happy, means an agreement may be more reasonable and cost effective than any division/negotiation/court proceedings decided on at a later time, and distribution of assets can be straightforward;
  • A BFA can provide reassurance;
  • A BFA can quarantine particular assets (for example, an asset that may have significant sentimental value) from the property pool if separation does occur;
  • A BFA can reassure the more 'wealthy' party that the other party is in the relationship not solely for material gain;
  • A BFA can act as an estate planning tool to minimise tax and ensure correct distribution upon death, and can provide some tax relief also upon separation.

Of course, while the advantages generally outweigh any disadvantages, there are some disadvantages to consider:

  • It may be difficult for one party to convince the other to enter into a BFA;
  • There is no scrutiny of BFAs by a Court or other regulatory body. This is why it is crucially important (and required by legislation) that each party to a BFA obtains independent legal advice;
  • Only the two parties in the relationship can be parties to a BFA;
  • The BFA may be lengthy (and consequently expensive to produce) to cover various contingencies, otherwise it may not be fair to one party.

Revoking a BFA

There are (very limited) circumstances in which a BFA can be set aside. These include:

  • if there is a material change in circumstances that may cause undue hardship to one party;
  • if one party signed the BFA under duress (for example, while being physically or emotionally abused);
  • if the BFA was obtained by fraud or the purpose of the BFA was to commit fraud;
  • if the BFA is impossible to be carried out, a party engaged in unconscionable conduct; or
  • if the BFA covers superannuation interests which are unsplittable.

A court will not set aside a BFA simply because it is unfair to one of the parties, because it is a requirement that each party must have received legal advice before signing a BFA and the lawyer must have provided extensive advice about its effects

A BFA cannot be changed, and if it is needed to be updated, it must be terminated and a new BFA entered into.

What to put in a BFA and what to discuss

It is important to get legal advice in relation to what is to be included in a BFA. In fact, the legislation provide that independent legal advice must be sought by each party.

The sort of issues that will be included in a BFA made before a relationship (or during a relationship) are:

  • whether you will combine your wages and other income,or keep them separate;
  • how you will divide money on a weekly, fortnightly, monthly basis etc;
  • what will happen with access to income, money, wages etc if one of you becomes a stay-at-home parent or is unable to work full time, for example through illness;
  • how you will own any property or assets you acquire in the future (for example, jointly, according to percentage of contributions etc);
  • what happens with any property and assets you already own;
  • what happens with any debt you already have;
  • what will happen with any future liabilities you acquire jointly or one party acquires, in the future;
  • who owns money in any joint bank accounts;
  • who pays the rent or mortgage, and in what shares, and if it is to be divided, what will happen if one party is unable to pay;
  • what entitlement each party has to the others' superannuation;
  • how property, liabilities and other resources will be divided if the relationship breaks down;
  • whether any spousal maintenance will be payable if the relationship fails;
  • whether the length of your relationship has any effect on how you divide your property if your relationship fails;
  • whether, if you have any children in the future, this will change these provision, or the division of property;
  • if you are not married currently, what effect a marriage will have on any agreement/s;
  • a list of the property, assets, liabilities and financial resources each party has currently, or at a prior point in time.

In considering these things to put in a BFA, there will be certain important questions to discuss with your partner. These questions include:

  • Do you intend to have children, or is there a possibility one party has children already with a previous partner?
  • If you plan to have children, what will happen if you have a child with a disability or a child who requires significant care?
  • Do you both intend to work during your relationship, and in what amount?
  • What will happen if one party is not able / does not want to work, or work to the same extent at some point during the relationship?
  • Will you have joint or separate bank accounts?
  • Will you have joint or separate assets?
  • How will each of you contribute towards living expenses and savings?
  • What will happen to any significant inheritance/lottery win/compensation/financial windfall one party may receive?

Consent Orders

Alternatively to a BFA, if there is agreement between the parties, each party can complete consent orders, which are reviewed by the Court to ensure they are legally binding. The Court will consider the overall effect of Consent Orders on you and your former partner. (Here the Court stands back and considers the actual assets and superannuation each of you would end up with, as well as the proposed percentage split of assets and superannuation. The Court has a wide discretion over this and there is no standard formula.

Contested Proceedings

If you decide to engage a lawyer and go to Court for contested proceedings, you must make a genuine effort to resolve your disputes through dispute resolution services before you can apply to the courts for parenting orders and/or financial orders (to find a dispute resolution service provider in your area visit www.familyrelationships.gov.au or call 1800 050 321).

These are part of what is called 'pre-action procedures'.

Pre-action procedures may not need to be followed in some circumstances, for example:

  • involving urgency
  • involving allegations of family violence
  • involving allegations of fraud
  • where there is a genuinely intractable dispute (for example, where one person refuses to negotiate)
  • where a person would be unduly prejudiced or adversely affected if another person became aware of the intention to start a case (for example, where there is a genuine concern that the other person would attempt to defeat the claim if they had this prior knowledge)
  • where a time limitation is close to expiring
  • where there has been a previous application about the same issue or subject in the last 12 months, and
  • where there is a genuine dispute about either the existence of a de facto relationship, or whether a party’s choice to agree to the jurisdiction of the Family Law Act 1975 in relation to the property or maintenance of a party to a de facto relationship should be set aside.

The following steps constitute the relevant pre-trial procedures:

STEP 1 Invite the other parties to participate in dispute resolution

A person who is considering filing an application to start a case must:

  • Give a copy of the 'Pre Trial Procedures' brochure, available on the website of the Family Court of Australia, to the other prospective parties to the case.
  • Invite the other parties to participate in dispute resolution. Dispute resolution services are provided by a range of individuals and organisations, for example, Family Relationship Centres, community organisations, legal aid commissions, and individuals such as lawyers, social workers or psychologists. If you are in a remote area, you can access FDR services via telephone.  

In a property settlement case, each party, at dispute resolution, must provide the following documents as applicable:

  • the party’s three most recent taxation returns and assessments
  • documents about any relevant superannuation interest, including:
    • the completed Superannuation Information Form
    • for a self-managed superannuation fund, the trust deed and the last three financial statements
    • the value of the superannuation interest, including how the value has been calculated and any documents working out the value
  • for a corporation (business), trust or partnership where the party has a duty of disclosure under certain Family Court Rules:
    • financial statements for each (including balance sheets, profit and loss accounts, depreciation schedules and taxation returns) for the three last financial years
  • for the party or a corporation (business), trust or partnership where the party has a duty of disclosure under certain Family Court Rules:
    • any Business Activity Statements for the 12 months ending immediately before the first court date
  • for any corporation, its most recent annual return, listing directors and shareholders; and the corporation’s constitution
  • for any trust, the trust deed
  • for any partnership, the partnership agreement, including amendments, and
  • unless the value is agreed, a market appraisal of any item of property in which a party has an interest

STEP 2 Agree on a dispute resolution service and attend the service

Each prospective party must:

  • agree on an appropriate dispute resolution service, and
  • make a genuine effort to resolve the dispute by participating in dispute resolution.

If an agreement is reached, you and the other party may enter into a financial agreement or apply to court for consent orders. 

STEP 3 Written notice of issues and future intentions

If:

  • no dispute resolution service is available
  • a person refuses or fails to participate, or
  • agreement is not reached through dispute resolution, then a person considering applying to a court must give the other person/s written notice of the intention to start a court case (called a notice of claim), setting out:
    • the issues in dispute
    • the orders to be sought if a case is started
    • a genuine offer to resolve the issues, and
    • a nominated time (at least 14 days after the date of the letter) within which the other person must reply.

This brochure must be attached to the notice of claim.

STEP 4 Replying to the notice of claim

If you receive this notice of claim, you must within the nominated time, reply to it in writing stating whether the offer is accepted.

Where agreement is reached, you and the other party should consider formalising your agreement by entering a financial agreement or filing an application for consent orders.

Where you do not accept the offer, you must set out in a letter:

  • the issues in dispute
  • the orders you will seek if a case is started
  • a genuine counter offer to resolve the issues, and
  • a nominated time (at least 14 days after the date of the letter) within which the claimant must reply.

If you do not respond, the initiating party’s obligation to follow the pre-action procedure ends.

STEP 5 Taking other action

Where an agreement is not reached after reasonable attempts to resolve it by correspondence, other appropriate action may be taken to resolve the dispute, including filing an application in a court.

In the event a formal Court process proceeds, which involves a few stages, briefly described as follows.

Your first court event will be a Case Assessment Conference or a Procedural Hearing. The purpose of the conference/hearing is to identify the key issues in your case and determine the best way to proceed. The Registrar will make orders to help you proceed to the next stage. If agreement is reached the Registrar can make orders based on that agreement.

The next stage in the court process is likely to be a Conciliation Conference conducted by a Registrar. The purpose of the conference is to negotiate and attempt to reach agreement about the issues which are in dispute. You will be required to prepare a conciliation conference document which sets out your proposal for settlement and the facts on which you base your proposal. If an agreement is reached, orders will be made based on that agreement. If no agreement is reached the Registrar will make procedural orders and the case will proceed to a pre-trial conference (at this stage the matter is known as a contested case).

The Pre-Trial Conference, like the case assessment conference and the conciliation conference, is an opportunity to negotiate agreement(s). The pre-trial conference is conducted by a Registrar. If your case does not settle by agreement, and if the Registrar is satisfied that your case is ready for trial, the Registrar will either allocate a trial date or list your case to a callover where a Judge will allocate a trial date.
How long it takes before your trial is held will depend on, among other things, the complexity of your case, the expected length of your trial and the availability of a Judicial Officer to hear your case.

If the Court divides the property of the parties, in determining a property settlement application the Judicial Officer must follow a four step process:

  1.  Identify and value the assets and liabilities of the parties.
  2. Assess the contributions made by each party and decide what percentage of the property each party should receive based on the contributions of both of the parties, including: Direct and indirect financial contributions such as wages, gifts and inheritance; Non-financial contributions such as renovations to a property, gardening or working in the family business; and Contributions to the welfare of the family. This includes contributions as a homemaker and parent.
  3. Make any further adjustment to ensure the settlement will be fair and to make a clean break in the parties’ financial relationship (when practicable), including considering the effect of any proposed order on the earning capacity of the parties, the factors to be considered in an application for maintenance, including spousal maintenance, and whether a party is liable to pay child support for a child of the relationship. They will then decide whether one party is disadvantaged, relative to the other party.
  4. Determine whether the resulting division is just and equitable.

If you were married to the other party, superannuation may be divided by Court order and therefore, the Judicial Officer must assess contributions to superannuation. However, if you were in a de facto relationship, superannuation must be taken into account as a financial resource under step 3. Other financial resources that must be considered there are money that you may or may not receive in the future, for example, from a trust, or damages that you might receive in another court case.

If you or the other party cannot meet your own reasonable expenses from personal income or assets, there may be an obligation on one party to assist the other financially after separation.