Two options commonly considered are Consent Orders and a Binding Financial Agreement (BFA).

Both can be used to formalise financial arrangements following separation, but they are fundamentally different legal mechanisms.

Consent Orders are orders made by the Federal Circuit and Family Court of Australia with the agreement of the parties. A Financial Agreement is a private agreement made under the Family Law Act 1975.

Understanding the differences can help separating couples determine which approach may be appropriate for their circumstances.

What are Consent Orders?

Consent Orders are proposed orders that separating parties agree upon and ask the Court to make.

They can deal with financial and property matters including:

• the sale or transfer of the family home;
• division of sale proceeds;
• payment of lump sums;
• bank accounts and investments;
• motor vehicles and other assets;
• responsibility for liabilities;
• business interests; and
• superannuation splitting.

Once made, Consent Orders are legally binding Court orders. They have the same legal effect as orders made following a Court hearing.

You can read more in our guide Property Settlement Consent Orders: How Do They Work?

What is a Binding Financial Agreement?

A Binding Financial Agreement is different because the parties do not ask the Court to approve the agreed property division.

It is a private agreement made under the Family Law Act.

Binding Financial Agreements can be entered into before, during or after a marriage or de facto relationship, provided the relevant statutory requirements are satisfied. In the context of separation, a Binding Financial Agreement can be used to document how property and financial resources will be dealt with.

Although commonly called a Binding Financial Agreement, whether a Financial Agreement is actually binding depends upon compliance with the requirements of the Family Law Act.

What is the main difference?

The fundamental distinction is:

Consent Orders are Court orders. A Binding Financial Agreement is a private statutory agreement.

When parties apply for Consent Orders concerning property, the Court must be satisfied that the proposed orders are just and equitable before making them.

A Binding Financial Agreement does not go through that Court approval process when it is entered into. Instead, its effectiveness depends upon satisfying the requirements of the Family Law Act, including requirements relating to independent legal advice.

Do both parties need independent lawyers?

This is another significant difference.

Consent Orders

There is no requirement that each party obtain independent legal advice before entering into Consent Orders.

However, the Court recommends obtaining legal advice because family law is complex and legal advice can help a person understand their rights, responsibilities and the effect of the proposed orders.

Financial Agreements

The requirements are different for a Financial Agreement.

Section 90G of the Family Law Act, in relation to married couples, provides that before signing the agreement each spouse party must receive independent legal advice from a legal practitioner about the effect of the agreement on their rights and the advantages and disadvantages of entering into it. There are corresponding provisions for de facto Binding Financial Agreements.

This means the parties cannot simply use the same lawyer to provide the required independent advice.

Does the Court review whether the settlement is fair?

With Consent Orders, the Court considers the proposed financial and property orders before making them.

Even though both parties agree, the Court can only make the proposed property orders if the statutory requirements are satisfied, including that the orders are just and equitable.

A Financial Agreement operates differently.

The parties are effectively contracting about their financial relationship rather than asking the Court to determine whether the agreed division should be made as property orders.

That distinction can be relevant where deciding which method of formalisation is appropriate.

What about financial disclosure?

Financial disclosure remains important when resolving a property settlement.

An Application for Consent Orders requires each party to disclose their financial circumstances and confirm that the information provided is true and correct. The Court recommends exchanging supporting material such as tax returns, payslips, bank statements and superannuation statements so each party can satisfy themselves about the other's disclosure.

The consequences of inadequate or misleading disclosure can also be significant in the context of Financial Agreements.

Before finalising any property settlement, each party should therefore understand the other party's financial position.

For more information, read Duty of Financial Disclosure in Family Law Property Settlements.

Can Consent Orders deal with superannuation?

Yes.

Consent Orders can include a superannuation splitting order.

There are additional procedural requirements for proposed superannuation splitting orders, including requirements concerning valuation and the superannuation trustee.

Where superannuation forms a significant part of the property pool, the wording and implementation of the proposed split should be considered carefully.

Can a Financial Agreement cover more than a property settlement?

Yes.

A Financial Agreement can deal with all or part of the parties' financial relationship and can address matters such as property, financial resources and maintenance within the scope permitted by the Family Law Act.

This flexibility is one reason Financial Agreements may be considered in particular circumstances.

Which option is cheaper?

There is no universal answer.

The cost will depend upon matters such as:

• the complexity of the property settlement;
• the number and type of assets;
• whether businesses or trusts are involved;
• whether superannuation splitting is required;
• the complexity of the drafting;
• the extent of negotiations required; and
• the amount of legal advice each party requires.

A Financial Agreement requires each party to obtain independent legal advice, which is an important factor when considering the process.

However, cost alone should not determine which document is used. The legal effect and suitability of each option are more important considerations.

Can Consent Orders be changed later?

Final financial Consent Orders are intended to bring the parties' financial relationship to an end.

Once final property orders have been made, they can only be changed or set aside in limited circumstances provided for by the Family Law Act.

This is one reason it is important to understand the proposed settlement before asking the Court to make final orders.

Can a Binding Financial Agreement be set aside?

Yes, in certain circumstances.

The fact that an agreement is described as a Binding Financial Agreement does not make it immune from challenge.

The Family Law Act gives the Court power to set aside Financial Agreements in specified circumstances. For marriages, these are addressed by section 90K; corresponding provisions apply to de facto relationships. The Court itself describes the law concerning Financial Agreements as complex.

Careful preparation and compliance with the statutory requirements are therefore important.

What if your property settlement is straightforward?

For separating couples who have reached a relatively straightforward agreement about their property, Consent Orders are commonly considered as a way of formally documenting the agreed outcome.

The Court specifically provides a process by which parties who have agreed can jointly apply for financial or property Consent Orders without attending Court.

However, the appropriate method will depend upon the circumstances of the particular matter.

What if businesses, companies or trusts are involved?

More complex financial structures may require additional consideration regardless of which method is used.

This may include:

• determining the value of a business;
• identifying company assets and liabilities;
• considering shareholder or beneficiary loan accounts;
• examining trust interests;
• determining taxation consequences; and
• considering how transfers or payments will actually be implemented.

Read our guide Complex Property Settlements: Businesses, Companies and Trusts for more information.

Consent Orders or a Binding Financial Agreement: which should you use?

There is no single option that is appropriate for every separating couple.

The decision may depend upon:

• the nature of the property settlement;
• whether the parties have already reached agreement;
• whether superannuation is being divided;
• whether maintenance arrangements need to be addressed;
• the complexity of the parties' financial affairs;
• whether businesses or trusts are involved; and
• the particular legal effect the parties are seeking.

If you are unsure whether the proposed division itself appropriately reflects your circumstances, read How Is a Property Settlement Calculated After Separation in Australia?

This article provides general information only and is not legal advice. Whether Consent Orders or a Financial Agreement is appropriate will depend upon the circumstances of each matter.