Financial Agreement vs Consent Orders
My ex-husband comes from a family farming business. I want out of the family business but should I finalise our settlement by signing a financial agreement or go to Court and get Consent Orders?
The simple answer: it depends. The circumstances of each couple are different. There are advantages and disadvantages to going to Court where Consent Orders can be enforced or finalising your property settlement by a financial agreement which remains confidential and allows you to decide independently how your property will be divided.
What are Consent Orders?
Consent Orders are filed in Court. After negotiation, the former parties to the marriage or de facto relationship agree on how they want the property divided to end their financial relationship. This agreement is drafted into Consent Orders which are presented at Court. The Court will only make these orders if they are considered “just and equitable” or in other words, that they are fair and reasonable to both parties. Property includes current assets, liabilities, financial resources and superannuation. Parenting Orders can also be included in Consent Orders.
What is a Financial Agreement?
A financial agreement is basically a contract between the former partners. As such it is a private agreement that does not go before the Court and therefore does not have to meet the threshold of “just and equitable”. As its name suggests, it only relates to financial settlement and does not refer to parenting.
Financial agreements can be signed before the marriage, essentially the “pre-nup” where parties decide what will happen to their property if the relationship breaks down. As the agreement can fall apart because of unforeseen changes in circumstances, these agreements need careful scrutiny and advice from lawyers to ensure that each party receives independent legal advice.
Financial agreements can also be signed during the relationship or at the end of the relationship to finalise financial settlement between the former partners. As there is no scrutiny of the Court, financial agreements may not necessarily be fair.
Why use a Financial Agreement?
The scenario of a generational family farm or business often lends itself to parties finalising settlement with a financial agreement. As a type of contract, third parties such as brothers or parents can be party to the agreement so that a former spouse can be given a lump-sum payment by a loan from the family to allow the business that generates income, to continue without selling the farm or factory that a Consent Order may necessitate.
Alternatively, a spouse may quarantine property from a prior relationship and protect it for a child of that relationship. In Consent Orders, all property becomes part of the property pool which is then divided between the parties.
Each case is different and it is important that you talk to a lawyer to ensure that your rights are protected and that you reach the best settlement to end your financial relationship with your former partner.
The following summary of the advantages and disadvantages of Consent Orders versus Financial Agreements is for advice only and to give you an idea of which option is best for you.
Please do not hesitate to contact us for further clarification.
A. CONSENT ORDERS
Family Law Act 1975 (Cth) (FLA).
Advantages
“Just and equitable”: Court must be satisfied that Orders comply with S79(2), the “just and equitable” provision to ensure fair division of property between parties; parties may make bargain that is “reasonable” in average person’s viewpoint in appropriate circumstances where it may not be obviously just and equitable;
Certainty: Enforceable registered Order made by the Family Court with strict compliance with Family Law Rules[1] (Part 10.4) documenting agreed division of assets;
Certainty: only limited grounds to set aside or vary the orders pursuant to s79(1)(a); [failure to disclose, fraud, duress;
Incompetent advice or miscarriage of justice; discretion is wide: even when ground established, order may remain intact;
Certainty: Transparency and disclosure obligations: Parties must sign “Statement of Truth” indicating that all assets have been disclosed;
If a party does not sign, a Registrar can sign documents on behalf of the non-complying party to register Orders;
Dependent on party’s circumstances: it may be an advantage for a party who potentially seeks spousal maintenance that an order for spousal maintenance can be varied;
Consent orders can include parenting provisions.
Disadvantages
Not confidential: Orders are made at Court rather than by private contractual agreement;
Normally cannot deal with Child Support;
Consent orders can only be determined for a de facto couple when that relationship has ended. (s90SL[2]) Alteration of property rights may be considered during a marriage as determined in Stanford & Stanford [201] HCA52 but only in limited circumstances;
Cannot involve 3rd parties such as brother of party who may jointly own property so to fulfil orders, party may have to sell or off-set his/her share of that property;
Costs: Consent orders can involve lengthy drafting, exchange of documents between parties’ solicitors and protracted proceedings in a court system that has extensive delays;
Delay: Court may require redrafting for Orders to fulfil just and equitable provision;
Delays may arise between filing and sealing the orders dependent on Court’s resources.
B. FINANCIAL AGREEMENTS
Advantages
No court appearance is required;
Confidentiality: a financial agreement is a private contract between parties, further confidentiality clauses can be written into agreement;
Third party involvement can be provided in agreement, allowing, for example, families with multi-generational farming property which generates the family’s income, to remain intact with off-set loans or lump sum payments to compensate for ex-partner’s share in farm or family business;
Third parties can quarantine property of previous relationship to protect it for child of that relationship so Court cannot make it part of property pool;
Spouse maintenance survives death of payer as estate will take over obligation contracted in agreement;
[1] Family Law Act 1975 (Cth) (FLA).
Dependent on who is paying, it may be an advantage that parties can only contract out of spousal maintenance by entering into a financial agreement;
Independent legal advice is required to detail advantages and disadvantages of entering into agreement to safeguard both parties’ interests; (see also disadvantages);
Recent case law suggests courts may declare financial agreements valid where intention of parties evident and/or non-complying clauses can be severed;
Disadvantages
Ousts the jurisdiction of the Family Court so the proposed agreement does not have to be fair, just or equitable;
As private agreement, parties are free to make a bad bargain;
A party may later want to seek spousal maintenance but has contracted out of claim by signing financial agreement;
Open to fraud: obverse of advantage to third party involvement is in unequal bargaining position when large family company seeks to obfuscate hidden company assets denying weaker party, full knowledge of potential claim. Weaker party cannot afford court proceedings to gauge extent of asset pool so signs financial agreement to avoid further costs; May be ground to set aside under FLA s90K(1) or s90UM(1).
Cost of financial agreements is usually more expensive to prepare because of strict legislative requirements and possible negligence claim against solicitor in cases of agreements being set aside;
Before a Financial Agreement can be enforced, a party needs to make an Application to the Court for a declaration that the Agreement is valid.
If a dispute arises about validity of agreement, parties may be subject to further protracted and costly litigation as enforceability of financial agreements is discretionary as outlined in s 90KA and s 90UN;
Case law demonstrates that a financial agreement can be set aside based on a technical deficiency such as drafting,; The Federal Justice System Amendment (Efficiency Measures) Act (No 1) 2009, commenced on 4 January 2010, has modified technical compliance.
Uncertainty: High Court set aside financial agreement in Thorne & Kennedy [2017] HCA 49 as it was grossly unfair and in circumstances of undue influence and unconscionable conduct pursuant to s90K FLA;
Uncertainty: legal advice must be comprehensive, independent and satisfy requirements of act. A single meeting may not satisfy the Act;
No register of agreements so copies should be kept in safe location in case of loss.
Conclusion
The decision to document settlement by consent orders or by financial agreement is dependent on the circumstances of the case and your financial situation.
Consent orders reflect the clean break principle inherent in s81 FLA underscoring the need to make orders, which are enforceable. The Court seals the orders if satisfied that the orders are a just and equitable division of the parties’ assets and liabilities.
However, where the finances of the parties are intricately bound by company, family and working ties, a financial agreement may settle a contract that allows third parties to be included. A family business may make a lump sum payment of a party’s share of that business to allow it to continue to trade while fulfilling the party’s obligations to settle the agreement with the former spouse.
Parties can contract out of claims for spousal maintenance in a financial agreement so you will need to instruct a lawyer on what your anticipated needs may be.
As a compromise, parties may apply for consent orders for the alteration of property rights in relation to the former matrimonial home, superannuation and personalty but make a financial agreement for spouse maintenance to avoid future claims in court.
A financial agreement finalised in circumstances where a party wishes to end a financial relationship with a former partner, avoid court and move on, is more likely to be upheld by the parties themselves and may provide a quicker solution for all involved.
Note: This is not legal advice and is provided for information only.
[1] 2004 (Cth).
[2] Family Law Act 1975 (Cth) (FLA).