The Importance of Financial Disclosure
It’s no secret that divorce and separation can be an absolute minefield. It is a multifaceted, difficult and emotional process.
If you are in the process of separating or getting a divorce, you have probably become quite used to hearing the term ‘Financial Disclosure’ being thrown around. However, it can be difficult to understand what its purpose is or why it is important.
As you may be aware, there are 2 ways to legalise a Property Settlement, by way of a Financial Agreement or a Consent Order. For both agreements, Financial Disclosure is essential.
Financial Disclosure is the crucial process that ensures each party has an accurate picture of the other’s finances. Each party has the duty to provide a full and honest disclosure of their assets, liabilities and financial resources.
What are Consent Orders?
For a court to approve your Application for Consent Orders, it must be satisfied that it is just and equitable to make orders. It is not compulsory for parties to receive independent legal advice, however it is recommended.
“Just and equitable” means that the orders must be fair to both parties and fall within the range of possible outcomes that could have come about had a judge decided.
What is a Financial Agreement
As Financial Agreements are not required to be approved by the court, but must be in a particular format. Each party must receive independent legal advice and there is no requirement that they be ‘just and equitable’. The parties may agree that the terms of the agreement reflect a satisfactory outcome in their circumstances. There may be practical considerations which lead parties to agree upon the terms of an agreement quite apart from fairness.
We’ve answered nine frequently asked questions we get when it comes to disclosing your finances to help you understand.
1.0 What is a Duty of Disclosure?
‘Duty of Disclosure’ is a term that lawyers, mediators, and courts use when referring to couples coming to a financial agreement when separating. Disclosure must be all of your financial circumstances including direct and indirect contributions
An example of an indirect contribution might be a third party, usually a parent who has provided free rent to the separating couple.
A direct contribution might be the money contributed at the start of the relationship and during.
2.0 Why is disclosure important?
For Consent orders it is a requirement of the court that party’s total financial circumstances of each of the parties be disclosed.
While this requirement of financial disclosure does not apply to Financial Agreements as the parties to a financial agreement contract out of their rights and responsibilities under the Family Law Act, a financial agreement may be set aside by the court in cases of non-disclosure of a material fact if it involves fraud. That is, if an asset is not disclosed, the agreement could be overturned by the court.
As a financial agreement requires a lawyer to provide each party with adequate advice before signing the agreement, the lawyer will ask for each party’s financial circumstances before providing this advice. If the lawyer determines that there is missing information from a Balance Sheet, such as missing bank accounts, the lawyers will insist on full and frank disclosure.
3.0 The process of disclosure
Disclosure requires each party disclosing to the other all sources of earnings, interest, income, property, and other financial resources. This applies whether the property, financial resources and earnings are owned by or come to the party directly or go to some other person or beneficiary (for example, the party’s child or de facto partner) or are held in corporations, trusts, company, or other such structures.
Examples of financial disclosure includes gifts, inheritances, income, Centrelink benefits, HECS debt, tax debts, property, mortgages, bank accounts, shares, money contributed start of the relationship and during. etc An indirect contribution such as homemaking and domestic duties need to be also disclosed.
4.0 Can a Financial Agreement or Consent Order be overturned? How?
Yes, If there has been fraud (such as non-disclosure of a material matter or hiding of assets); an intention to defeat or reckless disregard of the interests of a creditor; any duress, undue influence or unconscionable conduct (taking advantage of any weakness of a party); or circumstances have arisen making it impracticable for the Agreement to be carried out; or where the care arrangements for a child of the parties have materially changed so that a party will suffer hardship if the Agreement is overturned or deemed invalid (“set aside”).
if you owe money to a third party or share ownership of an asset eg property with a 3rd party, the 3rd parties interests need to be considered.. If not considered in the agreement, this could also pose a risk to the agreement being overturned.
5.0 Is it easier to overturn a financial agreement than a consent order?
Not necessarily. Either agreement can be overturned if there has not been disclosure of your financial affairs.
Examples of this include;
Not disclosing a bank account or bank account balance.
Not disclosing superannuation
Non disclosure of properties or other assets purchased after separation.
6.0 Does super need to be disclosed?
Absolutely. While individuals do not own their superannuation, they are a beneficial interest holder of their superannuation and it is therefore considered property of that party and must be disclosed.
If you are still unsure about your disclosure obligations, or would like to seek help to get started, contact us here at Simple Separation and book a FREE 30 min consultation today.
Simple Separation is a complete Mediation and Legal information service that assists couples to legally finalise their separation from start to finish online. All legal services are provided by our preferred panel of the best independent Family Lawyers, Estate Planning Lawyers and Conveyancers who share the same philosophy - to separate simply, fairly and respectfully.