In parenting and property family law matters, the aim is always for both parties to reach an amicable and just settlement following a separation. In some circumstances, both parties will come to an informal agreement (sometimes referred to as a “handshake agreement”), either verbally or in writing about how parenting responsibilities will be managed and/or how their assets will be split. But what happens when one party later reneges on that agreement? Is the agreement legally enforceable and how is it treated by the Courts if one party does not hold up their end of the bargain?

What is a “handshake agreement?”

A “handshake agreement” is an informal agreement made by two parties to a separation or divorce about how they will manage their property/financial assets (and /or parenting responsibilities). It could be in the form of a verbal agreement or a written agreement (including through emails).

While an agreement is reached at that point in time, it may be the case that down the track, one party reneges on the agreement or refutes the existence of such an agreement, leaving the other party open to risk. This could be due to changing life circumstances, for example, if one party loses their job and no longer has a steady income stream, re-partners or they decide they are no longer happy with the agreement in place as it didn’t suit them or they felt they were entitled to more.

While it is always encouraged that parties to a separation try to bring an end to their relationship amicably, it should be done in such a way so that the agreement is legally binding and enforceable to ensure the outcome is just and equitable for all involved.  

Is an informal or verbal “handshake agreement” legally binding?

While you may have an informal oral, handwritten, established through emails, or typed agreement with your former partner or spouse, unfortunately such an agreement is not a recognised method of documenting a family law property settlement, for many reasons that include:

  • the technicalities involved in contract law and the way the parties conduct themselves regarding the assets in question;
  • a change in the composition and value of the assets at the date a court considers a matter;
  • even if the agreement had already been acted upon, the jurisdiction of the Court cannot be ousted and a Court might still intervene, as it would not be binding on the Court, where its terms will not be given effect unless just and equitable.

In some cases, an agreement of this kind may be used as evidence by the Courts, for instance if one party agreed to not keep a property, but later changed their mind, the Court may still hold them to the agreement in this regard.

Having said that, a court is required to consider different legal principles when considering whether such an informal agreement has the potential to be enforceable or not (and usually considering the unique facts of each case).

This also includes a legal requirement made under the 2012 High Court of Australia case of Stanford v Stanford, that requires a court to be satisfied in the first place that it is just and equitable to make a property settlement order at all. For instance, one party might have lost all the assets they took under a handshake agreement, and then try to argue the agreement is not enforceable. It is possible the agreement – if its existence is proven – comes back to bite them.

The case of Landry & Talford [2020]

In looking at how valid a “handshake agreement” is when it comes to family law matters, we refer to the case of Landry & Talford [2020] FCCA 3442 (17 December 2020).

In this case, after 34 years of marriage, the Husband maintained to the Court that he and his Wife had ‘three oral agreements’ in place covering the separation of their property and assets.

The Husband contended the alleged agreements covered the following:

  1. that the former matrimonial home and $394,940 of sale proceeds that the Wife received would be credited against any property settlement;
  2. that ‘spousal payments’ the husband made from a trust of $770 per week would also be credited; and
  3. the Wife agreed that the Husband would retain the trust.

The certainty of the terms of the agreement, however, were not clarified, as the Wife disputed the existence of such an agreement.

In reviewing the facts of the case, the Court found ‘internal inconsistencies’ in the Husband’s trial affidavit detailing the oral agreements, as they failed to demonstrate a concluded agreement “as a contribution to any future property settlement.” Additionally, the Court found that based on the Husband’s poor memory, the agreement’s informality and lack of documentation surrounding the arrangement, the evidence for the oral agreement was insufficient.

Key take aways

The Landry & Talford case identifies the challenges that informal “handshake agreements” present in family law matters as they can be subject to opinion and cognitive bias, are often poorly documented, and due to their informal nature, are unlikely to be upheld in Court.

In some circumstances, the agreements may be upheld or carry some weight in family court proceedings if written evidence exists or there is a third-party witness to demonstrate that the agreement complies with the essential elements of a contract, and the terms are just and equitable.

Binding Financial Agreements (BFA) and Consent Orders

In order to finalise family law related property matters, parties are encouraged to enter into a Binding Financial Agreement or by way of an Application for Consent Orders, that is made with a court.

Both Binding Financial Agreements and Consent Orders are legally enforceable.

A Binding Financial Agreement can be entered into:

  1. before a relationship begins (sometimes referred to as a pre-nuptial agreement), or
  2. during a relationship, to come into effect at separation, or
  3. post separation once the relationship has broken down irretrievably.

Parties are also able to make an application to the court for Consent Orders. The terms of the settlement are reflected in the consent orders and are then stamped and approved by the Court as binding on both the parties. However, Consent Orders are only permitted to be filed once a relationship has broken down. You can learn more about consent orders here.

Seek expert advice from an experienced family lawyer

For tailored legal advice regarding your individual circumstances, our friendly and experienced Sydney family lawyers are here to assist.

If you need to formalise an agreement via way of a Consent Order or Binding Financial Agreement, or you have entered into an informal agreement and your former spouse or partner is not following the terms of the agreement, get in touch with Ivy Law Group on 02 9262 4003 for a confidential discussion, or submit an online enquiry.

The content of this article is intended as a general guide to the subject matter. For specific legal advice about your individual circumstances, please contact our experienced lawyers.