Why a “Handshake Deal” Isn’t Enough: The Hidden Risks of Informal Property Settlements

When a relationship ends, it can be tempting to reach a “handshake deal” or informal property settlement about how your assets and liabilities should be divided. Particularly if you’re parting on good terms, a mutual understanding of who keeps what may feel fair and easier than involving lawyers. But while informal agreements may seem convenient, they can carry significant legal and financial risks.

Why Informal Agreements Are Risky

Potential Future Claims

An informal agreement does not provide finality for the purpose of determining property rights under the Family Law Act 1975 (Cth). Accordingly, either party can be exposed to future claims.

As financial or personal circumstances change, there is a risk that one party may later decide not to comply with what was agreed or seek court orders for a different outcome to what was informally decided.

In Australia, there are time limits for bringing property settlement claims:

• Married couples: 12 months from the date a divorce order becomes final
• De facto couples: 2 years from separation

However, these time limits are not absolute and do not eliminate risk. In certain limited circumstances, courts can grant permission to proceed out of time, particularly where hardship would result. This means that even if you believe “too much time has passed”, a claim may still, in some circumstances, be possible.

Unfair or Unbalanced Outcomes

In some cases, one party may agree to a settlement without fully understanding their legal entitlements. This is particularly common where:

• One person has greater financial knowledge or control
• There is emotional pressure to “move on quickly”
• One party wants to avoid conflict at all costs

Without independent legal advice, it’s easy to agree to an arrangement that is not just and equitable – the standard a court must apply when making property orders.

Stamp Duty and Tax Considerations

Stamp duty exemptions typically apply to the transfer of certain dutiable assets between separated parties. However, these exemptions typically depend on a legally recognised property settlement – an informal handshake arrangement will not, by itself, qualify for the exemption.

For example, when you transfer real estate (such as the family home) from joint names into one person’s name as part of a formal settlement, you are generally eligible for an exemption from stamp duty under relationship-breakdown provisions in your state or territory’s duties legislation. On a typical Australian home, this can save you tens of thousands of dollars. In New South Wales, exemption under section 68 of the Duties Act 1997 (NSW) requires that the transfer be made under a court order or a compliant financial agreement.

It is also important to consider other tax implications when dividing assets, for example capital gains tax. If relevant, these and other financial matters concerning a proposed property settlement should be discussed with a financial professional.

Complexity with Superannuation

You cannot split superannuation via a handshake. Trustees of superannuation funds can only act on a valid superannuation splitting order or a binding financial agreement that meets the strict requirements of the Family Law Act 1975 (Cth) and the Family Law (Superannuation) Regulations 2001 (Cth).

Before finalising superannuation orders, trustees must generally be given procedural fairness and a copy of any proposed orders for review.

Why Getting Legal Advice Matters

Many people avoid legal advice to save money, but in the context of a family law property settlement, this can be a false economy.

A family lawyer can:

• Explain your legal entitlements and obligations
• Identify risks you may not have considered
• Ensure all assets (including superannuation) are properly addressed
• Structure the agreement in a legally binding way
• Help you achieve a fair and lasting outcome

In most cases, the cost of formalising an agreement is far less than the cost of resolving a subsequent dispute.

How to Make Your Property Settlement Official

In Australia, there are two main ways to formalise your property settlement so it is legally binding.

Consent Orders

You and your former partner reach an agreement and then apply to the Federal Circuit and Family Court of Australia for consent orders.

• Process: You submit a written application setting out how assets and debts will be divided.
• Check: A Registrar reviews the document to ensure the agreement is “just and equitable”.
• Result: Once approved, the orders are legally binding with the same force and finality as a court judgment. They can only be set aside in limited situations such as fraud, duress, non-disclosure, or miscarriage of justice.

Financial Agreements

Often referred to as “Binding Financial Agreements” (BFAs), these are private contracts between two people.

• Process: Unlike consent orders, BFAs do not go through the Court but must strictly comply with the Family Law Act.
• Requirement: Both parties must receive independent legal advice, and each lawyer must sign a certificate confirming they have explained the effect of the agreement and its advantages and disadvantages.
• Result: BFAs provide a confidential alternative to court orders, but because compliance is technical, they may be set aside if formal requirements are not met, or if duress, unconscionable conduct, fraud, or non‑disclosure are proven – courts have shown a willingness to scrutinise these agreements closely.

Final Thoughts

Informal “handshake” property settlements may seem appealing, but they often do not provide the security people expect. Without proper legal documentation, you remain exposed to future claims, disputes, and financial uncertainty.

Taking the extra step to formalise your property settlement can save significant time, cost, and stress down the track. It ensures your settlement is not only agreed, but legally final, giving both you and your partner a “clean break” as far as your finances are concerned.

If you are considering or have already entered into an informal property arrangement, seeking legal advice is a sensible next step to protect your interests and avoid unintended consequences.

This information is general in nature and does not constitute legal advice. If you or someone you know wants more information or needs help or advice, please call +61 2 9283 3344 or email [email protected].