I am separating, do I need to get the court involved?

The three options

Where the financial issues are agreed, there are three ways to record the outcome:

1. an informal agreement between yourselves;
2. a binding financial agreement, dealing with financial matters only; or
3. consent orders made by the court.

This article assumes there is no substantial dispute. If there is one, the analysis is different and you need advice about the dispute before you think about how to record the outcome.

An informal agreement is not worth having

We do not recommend this, and the reason is simple. It probably will not do the one thing you want it to do.

A handwritten agreement, an exchange of emails or a spreadsheet you both signed is unlikely to satisfy the requirements the Family Law Act sets for a binding financial agreement. Because it does not comply, it is probably not binding and probably not enforceable.

At best it records what you intended at the time. That has some evidentiary value if things go wrong, and a court may take it into account, but it does not stop an application being made and it does not bind anyone.

The temptation is understandable. It looks like it avoids the cost and inconvenience of involving lawyers. What it actually does is defer that cost to a point where it will be much higher, and where the person paying it may be you.

You are on good terms now. The reason to document properly is that people’s circumstances and attitudes change, particularly once new partners, new debts or new financial pressure arrive.

Binding financial agreements

A financial agreement is a document setting out how you and your former partner will divide property. It does not deal with arrangements for children.

It is the same category of instrument as a prenuptial agreement, differing only in timing and subject matter. The statutory requirements are strict, and they exist because these agreements oust the court’s ordinary jurisdiction:

• it must be in writing and signed by both parties;
• it must contain full and frank disclosure of each person’s financial circumstances;
• each party must receive independent legal advice from a different lawyer, about the effect of the agreement on their rights and about its advantages and disadvantages;
• each lawyer must provide a signed statement that the advice was given; and
• the formal procedures in the Family Law Act 1975 (Cth) must be followed.

Get those steps right and the agreement is generally binding and enforceable.

The difficulty is what happens when someone does not comply with it. A financial agreement is a contract. Enforcing it means proving the agreement, proving the breach and obtaining relief, which is more work and more cost than enforcing an order.

Financial agreements also have a track record of being challenged, on grounds including inadequate disclosure, deficient advice and unconscionable conduct. Every successful challenge is a matter where someone thought the issue was closed and it was not.

Consent orders

Getting to consent orders involves substantially the same preparation as a financial agreement. You each make full and frank disclosure, you document what has been agreed carefully, and you each get independent legal advice.

The difference is the final step. Instead of signing a contract, your lawyers file an Application for Consent Orders with a minute of the proposed orders, and ask the court to make orders giving effect to the agreement.

Nobody attends court. A registrar considers the application on the papers and, if satisfied the orders are just and equitable, makes them. The court applies the framework in section 79(5) of the Family Law Act 1975 (Cth) for married couples, and the equivalent in section 90SM for de facto partners.

The cost and complexity are not materially different from a financial agreement. What you get is materially better:

• Greater confidence the agreement will be honoured, because it is a court order rather than a private contract.
• Far easier enforcement if it is not. Enforcing a court order involves fewer steps and less argument than suing on a contract.
• Access to duty and capital gains tax rollover relief on transfers made under the orders, which is frequently the difference that pays for the process.
• Superannuation splitting can be dealt with in the same orders.

Consent orders can also deal with parenting arrangements in the same application, which a financial agreement cannot do at all.

So do you need the court involved?

Strictly, no. There are ways to finalise the financial side of a relationship without a court.

Practically, unless there is a specific reason pointing the other way, if you and your former partner agree on the outcome you want, put that outcome in a court order. It is safe, it is not expensive relative to what it protects, and it means everyone is held to what was agreed.

The related question of how long you have before the right to claim expires is dealt with in the clock that keeps running after you separate.

If you need help finalising a separation, obtaining consent orders, or you are in dispute with a former partner, our pages on binding agreements and consent orders and dispute resolution are the place to start.