Property Settlement – Informal Property Agreement – or Non Complying Binding Financial Agreements – Do they have any merit?

04/02/2016

In Family Law matters involving property allocation between parties to a marriage or parties to a de facto relationship following dissolution the parties often they come to "agreements" as to the allocation of the assets and other related matters.  It is a great pitfall for the agreement not to be properly documented. 

The Family Law Act applies particular rules as to the modes of documentation which are acceptable to effect a binding arrangement between the parties.  An informal agreement is not binding on the parties or the Court.  This allows for a reopening of the agreement reached either during the relationship or following separation. 

The Family Court Rules provides that any “agreement” between the parties as to the distribution of the property the parties after settlement should be by way of:

1.        Appropriate Consent Orders; or

2.        A Binding Financial Agreement (which must comply with the requirements of the Family Law Act).

Any other agreement will not be upheld as being a binding agreement between the parties as to the distribution of assets. 

However, in a recent decision of the Family Court of Western Australia (which was delivered in August 2015 a considerable time after the hearing) the Family Court examined the role of the informal agreement which was made during the relationship well before separation and had been to a degree acted upon.  Notwithstanding the Family Court in accordance with the provisions of the Family Law Act held that the "informal" agreement was not binding on the parties or the Court.

In the case of Graf-Salzmann v Graf the Family Court considered a 24 year marriage between foreign nationals who came to live in Australia.  In 2004 the husband and wife made an agreement which divided their assets.  The division reached in the agreement was in practical terms an equal division of the parties separated.

The informal agreement reached by them was not reduced to a Consent Order approved by the Court or a Binding Financial Agreement within the requirements of the Family Law Act 1975. 

The parties separated in 2010. 

The Family Court found that following the making of the agreement the marriage continued and the husband and wife had adopted traditional roles of “breadwinner” and “homemaker”. 

The Family Court found that the 2004 agreement could not exclude the power of the Family Court to make orders for property adjustment in accordance with the Family Law Act.  The Family Court’s jurisdiction could only be ousted by an )rder of the Family Court or an enforceable Binding Financial Agreement. 

Notwithstanding the finding that the 2004 agreement was not determinative the Family Court did indicate that it was a relevant consideration for the Family Court to take into account when deciding what result was a just an equitable order under s.79 of the Act. 

The Family Court did not divide property in accordance with the 2004 agreement and applied the general principles under the Family Law Act.

The case was complicated by numerous other factors.  The Family Court awarded the wife 72.5% of the net pool and the husband 27.5% of the net pool.  The net pool was determined to be valued at $997,901 of which the wife’s entitlement was property to the value of $723,478 and the husband was entitled to property to the value of $274,423.

In this case there were many other unusual and possibly complicated factors which may have had a bearing on the outcome of the proceedings.  However, overall the case confirmed that an informal agreement or an agreement which does not comply with the requirements of the Family Law Act either before the marriage or de facto relationship, during the marriage or de facto relationship or after separation will not be determinative and as in this case held little weight.

Please telephone Richard Watson if you believe a prior agreement (even one said or thought to be a Binding Financial Agreement) should be challenged or may be challenged by the other party to the proceedings we can consider those matters and provide you with the appropriate advice which you should have before making any final determination of what course you may wish to adopt.

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