Leaving the door open – risks of not formalising a property settlement

Aug 15, 2021

When separating, should you formalise a property settlement?  What are the risks if you don’t?

Parties may agree, either by themselves, or with the assistance of other professionals, including accountants, financial advisers or commercial or property lawyers, how their assets are going to be divided. The agreement may appear relatively simply, including, for example, one party retains a family business and its assets, and the other retains the family home, or they simply adopt a 50/50 division of all their assets as this is “fair”.

Being able to reach an agreement directly, without protracted and expensive litigation, is the ideal situation for separating couples. Where parties are able to achieve this, they may consider there is no additional benefit to engage a family lawyer to obtain specialised advice, or to formalise the agreement, particularly where other professionals are involved.

Parties may consider that a verbal agreement, or documenting the agreement between themselves, is sufficient.

This, of course, is a decision the parties are entitled to make, but it should not be done without caution.

Property settlements can be formalised in two ways, either by entering into consent orders or by way of a financial agreement. Each of these have their own requirements, advantages and disadvantages.

Unless property settlements are formalised in one of these ways, there is a very real risk that parties will leave themselves open to their former spouse coming back into the future for a “second bite of the cherry”. There have been occasions where such claims have been made many years after separation, after the parties have divided their property by agreement, without formalising that agreement either by entering into consent orders or a financial agreement.

It is necessary for a court to make property settlement orders based on the assets of the parties as they stand at that time the order is made, not at the time of separation or at the time any informal agreement is reached. This can lead to serious consequences for a party where, for example:

  • There is a significant change in value of a property, business or other asset since the informal property settlement was implemented. The court is required to take into account the current value, not the value upon which the initial division was based. This could mean a party who was able to retain that property, business or other asset previously, is no longer able to do so;
  • One party has incurred significant liabilities since the time of the informal property settlement. While the court will consider the reasons for this and the application of funds, the court will generally adopt the level of liability at the time the order is made, not that at the time of the informal settlement;
  • One party’s personal or financial circumstances have changed substantially since the time of the informal settlement, including their level income, health and receipt of potential inheritance and/or winnings. The court will consider the parties’ circumstances at the time the orders being made, not as they were at the time of the informal property settlement;
  • The informal property settlement was inadequate or not “just and equitable” for one party, taking into account all of the circumstances, and according to legal principles. This can leave a party who has achieved an advantageous settlement, at substantial risk.

Time limits apply within which a party is entitled to make a property settlement claim against the other, however, these can be relatively easily overcome if certain criteria is met.

Where a property settlement has been formalised by way of consent orders or a financial agreement, neither party is able to revisit that agreement unless they can meet the very high threshold required to set aside the orders or financial agreement.

Josephine Sergi at Kalus Kenny Intelex is able to provide advice about the advantages, disadvantages and risks to a party, and the suitability of whether to formalise a property settlement by either consent orders or a financial agreement is appropriate in a party’s individual circumstances.