This Article is an Updated of April 2024.
We're fierce advocates of striving to obtain a property settlement by consent and without going to Court. We feel the best way to make the property settlement legally binding is through a Consent Order – it's an Order of the Court, but no-one goes to Court.
With the substance and clauses of the Consent Order, the old adage 'the Devil's in the detail', is more than apt.
But what does this mean? What are the details you should be considering, looking out for, and making sure are being covered in the Consent Orders?
We intend to look into this with you, over a multi-part series of discussions. Today, let's consider some of the important ones when it comes to the way we set out in Consent Orders how the property pool is divided between the parties —
A recap on what may be included in the Property Pool
- The property pool is the term we use to describe the assets, superannuation and liabilities of the parties that are to be divided as part of the property settlement.
- Assets include, but are not limited to, the house, cars, furniture and home contents, bank accounts, shares, businesses, antiques, artwork and similar.
- Liabilities include the mortgage, credit cards, personal loans, outstanding tax, HECS debts and similar.
- The goal, in essence, it to arrive at an agreed net property pool value, both in terms of the items contained within it, and the values ascribed to those items.
- It can be a simple and straightforward process, or, it can be difficult, complex and time consuming. A lot will depend on the attitude and conduct of the parties, the volume and complexity of the items in the property pool, and the time that has elapsed since separation, to name a few.
What's involved in setting out the division in the Consent Orders?
- The Consent Orders need to cover the mechanics of how the property pool is to be divided, typically by way of clauses that deal not only with the mechanics and procedures for that process, but also clearly setting out the parties obligations in carrying that out.
- Each particular 'thing' that needs to be done to give effect to the division should be set out in individual clauses and set out who needs to do what (obligations) for that to occur.
- A starting point is to work out who is getting what, and who is to be liable for what, according to the agreement, and who needs to do what for that to occur, and, in the event of a failure, what is to happen/contingency plans. There are many components in the property pool, but we will focus on some things to consider in general terms where there is a house involved.
- The most common component we find in a property settlement is the house. Usually it is in joint names, with a mortgage in joint names too. Usually, it is to be transferred to one party, and that party will refinance the mortgage into their name, and pay the other party some money. There will be clauses that tell the parties their obligations and what they need to do, how, and when, for that house transfer, refinance and payment to occur.
- The details in the clauses need to be specific and cannot be vague. Precision is key.
- Consideration needs to be given to a contingency plan. For example, the party who is to receive the house may have finance fall through, or not be able to pay the other party. The Consent Orders should set out what is to happen in that event – these are usually clauses that say the house is to be sold, with proceeds divided according to a mathematical formula that takes into account the overall percentage entitlement outcome that has been agreed upon for the property settlement.
- Likewise, consideration needs to be given to the 'day to day' mechanics, such as who will be responsible for mortgage repayments, utility and house expenses pending the transfer (or sale), and indeed, who will have the right to occupy the house in the meantime. Again, all these aspects should be covered, in detail.
Some other things to consider
- Before committing to an agreement where a house is to be transferred and the mortgage refinanced, it is imperative the party who is to do this makes enquiries with their lender/broker to ascertain borrowing capacity and whether this is financially possible. This should also take into account how much that party may need to pay the other party. Borrowing pre-approval should be obtained.
- A transfer of a house under a Consent Order can serve to waive stamp duty.
- If applicable, CGT advice should be obtained from an Accountant in the event that the house is likely to be sold.
The above discussion covers only some of the requirements and things you need to consider and implement.
Join us next time when we discuss what needs to be done in consent orders when covering the division of other common assets, superannuation and liabilities
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
