With the increase in the cost of living, it is becoming more common for partners who are separating to try to come to a financial agreement outside of the Court. These agreements are commonly known as ‘DIY Financial Agreements’. Whilst the DIY agreement may be cheaper in the first instance, it can leave the parties open to financial risk in the future.
In the event that one party fails to uphold their obligation, the DIY agreement made between the parties cannot be enforced. The only agreements that can be enforced are those that are finalised by way of a Binding Financial Agreement or Consent Orders filed at the Federal Circuit and Family Court of Australia.
If the parties finalise their property settlement as soon as they separate, all assets and liabilities at that time of separation will be included within the agreement and divided according to the parties wishes.
The risk for parties who opt to do a DIY agreement which is not formally finalised is that it leaves open the opportunity for one party to decide in the future to go against the original agreement and seek a new arrangement, often seeking more money or a greater share of the assets. This would result in all assets and liabilities at the time of litigation being brought into the proceedings, which may include inheritance.
In a hypothetical situation, Alice and John were together for 12 years. They have recently separated but are amicable. They have decided that they do not want to finalise their property matters by way of Consent Orders or Binding Financial Agreement because they were quoted $4,000 to do so, by a law firm. They did not see the need to pay $4,000 to finalise an agreement they had made themselves. The parties owned 1 property and had no other assets.
Alice and John agreed that Alice would retain the former matrimonial home which was worth $1,000,000 and would refinance the mortgage of $700,000 into her sole name. This agreement resulted in Alice retaining $300,000 in equity from the relationship.
10 years later, Alice’s parents sadly passed away and she received an inheritance of $500,000. John and Alice are no longer on good terms. John has now decided that he is no longer happy with the DIY agreement and wants to complete a finalised agreement by way of Consent Orders.
Alice’s inheritance of $500,000 could now be deemed a financial resource or may be included as an asset in the parties’ asset pool for the finalised agreement, even though she received the funds 10 years after they separated.
The importance of the hypothetic scenario is to demonstrate that if you and your partner do not finalise the agreement by way of Consent Orders or Binding Financial Agreement, it can leave you open to the risk of future assets or financial resources such as inheritance being included in the finalised agreement. We understand that some relationships separate amicably, however we advise that you protect yourself and your future assets.
Should you have any questions or need assistance in finalising property agreements please do not hesitate to contact our Family Law Team for more information.