Failing to formalise a property agreement properly can lead to very serious consequences.

There are many examples in the case law of this happening. In one particular instance, a wife was ordered to pay her estranged husband about $25,000 more than seven years after the couple separated and reached an informal property settlement.

Their situation had changed since their informal agreement, and it would be unjust to hold them to it, even though the husband had been violent and had spent considerable amounts of money on alcohol, drugs and gambling, the Federal Court magistrate Philip Burchardt said.

The Melbourne couple had been married for more than 20 years and had four children when they separated in 2004. They had not been divorced.

The wife told the court they had agreed when they separated that she would remain in the mortgaged matrimonial home with the children, while he kept an investment property, a car, and his larger superannuation.

Even though her husband denied such a deal had existed, the court found that there was no doubt the parties had come to the agreement the wife had described.

But the husband’s life ”went into something of a tailspin” after the separation, the court heard. He had drunk six to 12 stubbies a night and smoked cannabis almost daily during the couple’s marriage, but this increased after their separation, when he also started to gamble.

The husband also lost his job and ”conducted his affairs so inefficiently and negligently that he was made bankrupt”.

His health worsened, he became an invalid pensioner and rented accommodation cheaply.

Lawyers for the wife strongly argued the 2004 agreement should stand, even though it had not been formalised.

But the court said: ”Their positions have changed radically since then. The parties simply did not foresee the very unfortunate march of events that has transpired and to hold them to their bargain as a matter of justice and equity at this stage would plainly be unconscionable.”

In cases where parties have separated, the court’s hands aren’t tied by anything the parties agree informally.  The only solution is to ensure that parties have a properly prepared, and thus binding, property settlement.