Is an informal property settlement binding?
Courts will usually only recognise a formal property settlement and that prevents the court from making any further adjustment to property orders.
However, in a recent case, a judge refused to make property adjustments orders sought by the ex-wife in circumstances where the parties had an informal but complete division of their property. The informal property settlement was agreed to 10 years prior.
In 2009, the family home was sold and the sale proceeds were divided between the parties, with the wife receiving 60%, and the husband 40%. At the time, they did not enter into a binding financial agreement to formalise the arrangement.
The wife used her share of the sale proceeds towards the purchase of another home, which she then renovated and sold in 2011. She then used the proceeds from the sale of that second home to buy shares in a start-up investment scheme, which promised substantial returns. However, she lost her entire investment as a result of a fraud by the scheme’s operator.
The wife then rented for a couple of years, before buying another property. Her parents paid the deposit for that property, and the rest of the purchase price was met by a mortgage loan.
The husband lived in several rented properties after the separation before he began to live with his current wife in 2016. She owned her own home and was a successful businesswoman, which enabled the husband to live a good lifestyle.
At the time of trial, the husband owned very little in the way of assets – essentially only his car, an interest in a company that was in the process of being liquidated, and an unquantified equitable interest in his current wife’s property.
The husband issued his initiating court application, seeking parenting orders only for access to their son in 2016. His former wife filed her response seeking parenting, property, spousal maintenance and child support orders in 2017.
There was a delay of seven years and five months between the division of the property in August 2009 and the wife filing her response seeking property orders in January 2017. She had made no other attempt to seek to alter their property interests.
The judge found that the parties sold their jointly owned house, divided its sale proceeds and jointly owned chattels and went their separate ways, connected thereafter essentially only by their son.
He said the wife’s failure to seek a further altering of the property interests until the husband made his application for parenting orders was a relevant factor. And the judge then dismissed the wife’s property settlement application.
In this case, the husband was able to rely on the previous informal property settlement to avoid a further property adjustment with the wife.
However the fact that there was no documented consent order or a binding financial agreement which documented this early agreement meant that the court still had to consider and determine her property settlement application before they could dismiss it, which no doubt cost the husband considerable legal costs, as well as time and stress.
It is therefore always best to properly formalise any property settlement once an agreement has been reached so that such situations can be avoided.
If you need advice on property settlement, binding financial agreements, parenting orders or any other aspect of family law, please contact Michael Lynch Family Lawyers on: (07) 3221 4300 or email: [email protected]