March 26, 2015
Men and women alike often come to us worried senseless at the first sign of a break-up, and irrespective of whether property proceedings or even division has been raised or not. Most of the time, they’ve either heard the horror stories of one spouse getting away with most of the assets of another, or the lawyers significantly eroding either or both parties’ slice of the pie. To some, the most concerning aspect is the great deal of animosity that can result when things turn sour, and the stress of possibly having to deal with that for months (or years) if Court proceedings become protracted. To others, it can be waiting in limbo until after a divorce clears without having any security. However, it does not have to be that way, and should not in any case. Here we explain some of the reasons why…
Firstly, while it is true that the Court will generally not make a divorce order until the parties to the relationship have lived apart for at least 12 months (and even then when there appears no prospect of cohabitation resuming), in some cases, the parties need not wait until a divorce has been processed or even applied for. In terms of spousal maintenance, if one party has an urgent need for financial assistance, the Court can make periodic or interim orders even before all information and issues have been aired and final orders made. In any case, the Court can make maintenance or property orders before a divorce decree has been issued. So, you now know it is possible to approach the Court for a quick resolution, even prior to an actual divorce. Now we turn to how to make things easy…
There are three ways to simplify things. The first is simply to reach a private agreement. If the parties to the relationship are comfortable working things out between themselves, and can reach an agreement that suits them both and that they will stick to, without the need for anything else, there really is no need to do anything further. However, in the context of family law, such private agreements are not always recognised, and even the usual rules of contract do not apply. That being so, if it is likely or even possible that one party will fail to honour the agreement at some point, such a private and informal understanding will prove insufficient for the other party.
For a truly final resolution that excludes the Court’s jurisdiction to make further or alternative property or maintenance orders, one option is for the parties to enter into what is known as a binding financial agreement. These can be made before a marriage, during a marriage, after the breakdown of a marriage but before a divorce order has been made, or after a divorce is finalised. They are written agreements that set out how certain matters are to be dealt with following the breakdown, from all forms of property (i.e. real property and even household contents) to spousal maintenance, other financial matters and other related matters. There is a very specific formula or test and process for making these agreements binding, and thereby excluding the Court’s jurisdiction to make orders regarding the matters covered in the agreements, and if there is a material change in the circumstances of a party, the Court’s jurisdiction may be invoked once again, so parties will really need to see their own competent lawyer independently to ensure this option will work for them (they will also each need signed certificates from independent solicitors verifying that they have been advised regarding the advantages and disadvantages of the agreement). Most importantly, they will not take effect unless and until a separation declaration is made, stating that the parties are separated and are living separately at the time of the declaration, and that there is no reasonable likelihood of cohabitation being resumed. However, these declarations can be made in the agreements themselves.
The effect of a financial agreement, if binding, will be that one party is precluded from successfully applying to the Court for orders inconsistent with the provisions of the agreement. However, that will not necessarily stop a party from approaching the Court, and thereby putting the other party to the cost and stress of Court proceedings, and the agreements themselves do not always actually effect the transfer of property without further tasks being undertaken, or become binding against third parties, such as subsequent creditors of one of the parties to the relationship.
In order to overcome those two shortfalls, the parties will need to approach the Court, although it need not be all bad. The Court has the power to make orders by consent on the application of either of the parties. That being so, the Court can make orders that mirror or otherwise give effect to the terms of an existing binding financial agreement. Alternatively, the Court can make agreed orders drafted by the parties without a binding financial agreement, but in relation to the same matters. In some cases, the parties will still need to provide evidence as to their income, tax returns, bank accounts, business interests and general financial needs and resources. However, consent proceedings can be conclusively determined relatively quickly, and if by consent, the need for several interim procedural Court appearances, financial auditing, business and asset valuations or forensic assessments, tax assessments, applications within the case, final hearings and otherwise can all be avoided, thereby not only saving a potentially enormous amount in costs on both sides, but also a great deal of time, uncertainty and stress. In some cases, depending on the level of cooperation between the parties, this can be achieved, with or without a binding financial agreement having been drafted, for anywhere between a few hundred to a few thousand dollars, whereas the conventional litigation can costs tens or even hundreds of thousands in an extreme case.
At this point, in summary, a private, informal agreement will be sufficient if the parties can trust each other not to come back for more and to stick to the agreement, and if no property of a substantial, extensive or complicated nature needs to be transferred. A binding financial agreement will provide security vis-a-vis the other party, provided nothing material has changed (such as the needs of a child to the marriage), and some level of security as against third parties, but not necessarily complete security, and may not provide for everything required to adequately deal with such property. Although it is true that there are exemptions from duties, charges and taxes (such as capital gains tax) available on some transfers of matrimonial property (which includes real property, shares, household contents and so forth), in most cases, the exemption will only be recognised if there is a truly binding financial agreement in place, but given that material changes in circumstances can invalidate such agreements, a Court order made by consent will always be the safest, most secure and most conclusively determinative option.
It is worth noting that de facto relationships may enjoy some of the same benefits if certain conditions are met, although the rules are different, and so this information will not apply in general to them.
The parties to a great deal of broken down relationship still seem to argue and bitter, even if only out of spite. Given that the marital asset pool is finite or limited, and often the Court will order a percentage of that limited pool to each party, it makes no sense whatsoever to be wasting any money on lawyers, Courts, forensic accountants, asset valuers or even on trying to circumvent or dispute potential adverse tax consequences or enforcement attempts by subsequent creditors. Both parties win by achieving one of these options, and both parties lose by failing to do so – there is no middle ground. This should always be raised, whether as a negotiation tool or otherwise, when the conversation first arises following the break-up.
Parties would be well advised to find a lawyer they trust to do competent, effective and reasonably priced work to keep them out of Court. Feel free to contact us if this situation applies to you.