Binding Financial Agreements vs Consent Orders
When parties finalise their financial relationship after a separation, a question arises as to the most appropriate method to achieve a fair settlement. If the parties are unable to agree, it may be necessary to apply to a court exercising family law jurisdiction for financial orders. Where agreement has been reached, consideration should be given to the advantages and disadvantages of consent orders and Binding Financial Agreements made between legal representatives.
Binding Financial Agreements are made in accordance with the provisions of the Family Law Act (or in the case of de facto relationships in Western Australia, the Family Court Act). These financial agreements are still commonly known as Binding Financial Agreements (BFAs), notwithstanding that the Family Law Act has been amended and now refers to them simply as Financial Agreements.
Consent orders must be just and equitable
For a court to exercise its discretion to make consent orders, it must be satisfied that it is just and equitable to make orders. The court must then be satisfied that the proposed orders are themselves just and equitable. “Just and equitable” means that the orders must be fair to both parties and fall within the range of possible outcomes that could have come about had a judicial determination been made.
As Binding Financial Agreements are not approved by a court, there is no requirement that they be just and equitable in accordance with the criteria applied by the Family Court. The parties may agree that the terms of the agreement reflect a satisfactory outcome in the circumstances. There may be practical considerations which lead parties to agree upon the terms of an agreement quite apart from fairness. Consequently, parties are free to enter into grossly unfair agreements if they choose.
Independent legal advice
Consent orders are generally simpler and less expensive than Binding Financial Agreements. Whereas terms of Binding Financial Agreements must be drafted according to the circumstances of each particular matter, consent orders are supported by an application prepared in accordance with a particular form approved for use in the Family Court. Legal representation may not be necessary to obtain consent orders.
For Binding Financial Agreements, both parties must receive independent legal advice for the agreement to be binding and for the agreement to comply with the requirements of the Family Law Act. It is a common misconception that BFAs are simply an alternative to consent orders or an option to be considered only in those circumstances where there is doubt that a court will approve orders in the terms proposed by the parties.
Generally, Binding Financial Agreements offer more flexibility than court orders. An exception would appear to be property acquired after divorce. A BFA can only deal with property the parties own or property they owned prior to divorce.
There can be circumstances where the parties may consider that a Binding Financial Agreement is more beneficial than consent orders notwithstanding that a court would have accepted that what is agreed between the parties is fair to both of them.
When orders are proposed, the Family Court requires parties to provide each other with full and frank disclosure of all financial information, including documents which may be relevant to the case. If this does not occur, then in some circumstances a miscarriage of justice may result, giving rise to the possibility that the orders may be set aside by a court.
This requirement for financial disclosure does not apply to Binding Financial Agreements. The parties to a BFA contract out of their rights and responsibilities under the Family Law Act. This includes not simply as to the terms of the property settlement, but also the pre-action procedures of the court, including the duty of financial disclosure.
A BFA may however, be set aside in cases of non-disclosure of a material fact if it involves fraud.
Of course, in seeking a fair outcome it may be unhelpful if parties choose to keep their financial circumstances private. However, parties are sometimes motivated to settle their financial arrangements for reasons which do not require a complete understanding of the financial circumstances of the other party.
Further, in circumstances where the other party’s financial arrangements are complex, significant expense and time may be needed to ascertain the true value of assets in their name or possession. There may also be other parties, such as family members who may also need to become involved in the process.
Spousal Maintenance and Financial Resources
If parties elect to proceed by way of consent orders, this only finalises the property settlement. It does not overcome the possibility of a spousal maintenance application being made subsequently. Whilst in determining what is just and equitable a court will consider the future financial needs of the parties, it cannot make a spousal maintenance order which is final.
The parties can however finalise spousal maintenance under the terms of a Binding Financial Agreement. Parties can also alter their interest in financial resources under Binding Financial Agreements. In contrast, under court orders only a party’s interest in property can be adjusted.
Other parties and matters
In some circumstances, it is appropriate that other persons or companies be parties to court orders. This occurs where the financial interests of others may be affected. It is also possible for other persons to become parties to Binding Financial Agreements. A financial agreement may also contain provisions dealing with any other matters. This applies to any other matters at all, including anything unrelated to the property or spousal maintenance of the parties.
When finalising financial arrangements following the breakdown of a marriage or de facto relationship, parties should obtain legal advice. This should pertain not just to what would be a fair settlement, but also as to how best to give effect to the terms of the settlement.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.