Family Settlement Agreements are an alternative to Wills that is drafted with the consent of all family members & determine how assets & properties will be divided amongst them.
It has been a common occurrence over the years, especially in India, for families to face disputes related to distribution of properties and other family assets. The problem becomes a bigger issue if the predecessor does not leave behind a Will that specifies how the assets will be distributed amongst the successors. Besides, even a well-executed Will may be challenged by successors that have not been mentioned or are unhappy with the distribution of assets. In such cases, a family settlement agreement can prove to be an effective solution to solve such disputes.
Family Settlement Agreement (FSA) refers to an informal agreement between the members of a family to distribute property and assets in a different way as directed by the law. It can be considered as an alternative to resolve dispute or potential disputes related to asset distribution amongst family members. This includes both movable and immovable assets.
The purpose of an FSA is to avoid disputes amongst members of a family and ensure that the familial relations are maintained even if there are disputes or differences. It aims to maintain the unity and harmony between family members and prevent them from breaking apart due to conflicts for assets in the future.
In the case of Kale & Ors v. Dy. Director of Consolidation [AIR 1976 SC 807], the Supreme Court termed the general effects and values of FSAs to be an agreement as per which the descendants of a certain family aim to resolve their differences and disputes along with conflicting claims and titles once and for all to achieve peace of mind and harmony and goodwill in the family.
An FSA is similar to other contracts between two or more parties. The members of the family are bound by the agreement if they have entered it on their own free will and consent to adhere to the clauses mentioned in the agreement in case of any potential dispute/difference.
The FSA must be genuine for it to settle disputes and claims through fair and equitable standards.
The parties of an FSA must have some ancestorial claim, title or interest in the asset(s). However, if there is a party who has no title but is supported by another party, who has given up their claim, the Court shall uphold the terms of the FSA.
Some crucial clauses in an FSA are:
If family arrangements have been made orally, no registration will be required.
FSA cannot be considered as a document for transfer of property. It can only be used to resolve property or asset-related disputes between members of a particular family and not to transfer a property to anyone that has no claim or interest in the property.
After taking the numerous judicial statements into consideration and reviewing them, it can be evidently seen that Courts have a very open mind and a broad view of the validity of FSAs. They generally try to respect and uphold the terms of such agreements between family members.
The basic thought behind this certain approach towards FSAs is that if the members of the family have consented and willingly agreed to join the agreement, then they shouldn’t be allowed to question or reopen the case for random reasons. However, if any of the parties involved in the agreement proves that some sort of fraud is involved in the FSA, the entire agreement shall be deemed invalid, as fraud discredits everything.
Besides, a valid and legally binding FSA also acts as an estoppel and prevents parties who have benefitted through the FSA to challenge the same.
Wills are the most reliable documents to determine inheritance and the manner in which properties shall be divided amongst the successors. However, family settlement agreements prove to be equally valuable in cases when a Will does not exist and the members of a family need to decide how the assets and properties will be divided amongst themselves. Besides, if the family agrees and consents to how assets will be divided, a lot of potential conflicts and differences can be avoided by simply drafting an FAS that documents the willingness of family members to do so.
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