Podcast: Marriage, Separation and Estate Planning

How does getting married impact the status of a current will?

Getting married will absolutely revoke and wipe out a prior will unless that prior will was made in contemplation of marriage to that specific person.

What are the consequences if you fail to create a will after marriage?

It could result in the intestacy laws of the relevant state or territory of Australia, on where that person is considered to have been domiciled coming into play, which may not have the intended effect, especially when it comes to blended families, which I’m sure Claire, you deal with a lot. And in terms of the division between the current spouse and children of a prior relationship.

How should you factor in blended families when making a will?

Yes, it’s something we have to deal with many families and it is difficult and often it is a two-pronged approach, and Claire, I will ask you some questions around that later, around binding financial agreements and the strategy about using those vehicles in addition to you doing your estate planning.

When it comes to what we do on the wills and estate side of things, it’s more about saying okay, look at it from a death perspective, how do we mitigate risk, how do we try and alleviate the impact to the estate and someone potentially contesting your will, which we don’t want. And obviously, when someone dies, just to recap, and I know we’ve done this in our previous podcasts.

It’s only the assets that you hold personally that pass under your will when you die. So we can sometimes be a bit strategic in a blended family context and earmark separate assets for different people. And we might do that somewhat outside of the will as well as under the will. But also, we might look at other strategies under family law.

Contemplation Clauses: Do they have legal effect?

They do if they’ve done properly. And it means it’s a contemplate, like you’re entering into that will in contemplation of marriage with a particular person.

So you might stipulate in that clause this will is binding as long as I marry this particular person within 12 months. If you don’t marry that person within 12 months, but you marry them two years later, that might have a diabolical effect, and the will might not stand. But most people in those types of clauses leave it open-ended. So it’s just about whenever you get married to that particular person, it would still endure, and it would still exist post the marriage, and it wouldn’t be revoked by the act of marriage.

But other people feel more comfortable putting a time frame around that, just in case.

What happens to an existing will when couples divorce?

Quite different to the act of separation, when nothing happens to any part of your will unless you’ve sought to change it, obviously, the act of divorce will change any clause or effectively invalidate any clause in that will that appoints that divorce spouse as your executor or a beneficiary of your estate in whatever capacity. So then, other provisions, default provisions, if there are any of the will come into play. It’s as if that person has effectively died, I guess, before you, and they’re read out of the will.

Otherwise, the intestacy provisions of the relevant state or territory may come into play, which means that it provides for where your estate goes if a person had died. And obviously, that part of the will was invalid.

So Claire, over to you in terms of where do you, so when a couple divorces then, how do you work them through that process under family law? Also the interplay with them needing to change their wills. And I guess we can’t forget, we often do forget about this, people think if they change their will, it also impacts upon where their superannuation goes. And as you and I know, that’s not the case, because it’s also a function of updating their nomination, which people forget sometimes they change their will, but they don’t update their nomination. So what sort of conversations are you having with people at that stage?

So Teresa, when someone comes in to see me for an initial consultation, often towards the end of that consultation, I will raise this exact issue. I’ll say to them, firstly, do you have a will? Now, unfortunately, we still see a lot of people that do not have a will. So if that’s the case, I say to them, go and get a will immediately. If they do have a will, I recommend that they go to a Wills and Estate lawyer to update that will.

Whether it’s to get an interim will or just to get the advice around what they need to do. It’s very, very important because, as you’ve just pointed out, it’s not until the divorce takes effect, which may not be for many, many months, if not years, that that will then revoke the will that’s place. And the other piece of advice there is always have a look at your will and have a look at your binding death nomination and update that as well.

Don’t wait for divorce or for some other date down the track.

Is separation enough to exclude an ex-partner from your will?

Separation itself doesn’t actually create an invalid will or the will to be revoked – a divorce.

So, if you’re de facto then and you separate, then you should redo your will straight away?

Straight away. Yep, absolutely. And I think, to be honest, you know, as soon as you separate, whether you’re married or de facto, you should just go and see Teresa, go to iWills and redo your will immediately. And that’s certainly what I would be saying to anyone.

So, the corollary to that is, relying on a divorce to amend your will is a bad strategy. You could be exposed for a lengthy period of time, how long?

For a married couple, in order to legally end that marriage, they will need to apply for a divorce. So they have to have been separated for a period of 12 months before either party can apply for a divorce. And once that time limit has elapsed, then either party can apply for that divorce. And then obviously that has an impact on the Wills and Estate jurisdiction. Yeah, we see that a lot, Claire, actually. I know you, and I have had many a conversation on this issue where a couple may have been separated even for a longer period than 12 months, but they never proceeded with filing for divorce.

And so, unfortunately, the clauses in the will are still valid. So, unless that married couple has actually divorced, not just separated, those clauses dealing with any inheritance or appointment of executors for that spouse are still valid. Yeah.

And it’s interesting when it comes to divorce. In most of our cases, I would say divorce is the very last issue that we deal with. So we much prefer to have dealt with the property settlement and parenting issues, resolve those before we then recommend to clients to go ahead and lodge the divorce paperwork. And the reason for that is once a divorce order is made, it will commence a 12-month time limit for the parties to be able to commence property proceedings in the family court.

So we try not to put too much pressure on ourselves to have that time limit sort of ticking in the background, when really, practically the only thing that a divorce order will do will legally end the marriage, which means that they can remarry if they want to. But then obviously it has an impact on the Willson Estate section.

Teresa, you mentioned that one thing you often raise with clients is the distinction between the definition of a de facto spouse under family law, versus the definition that used in Wills and Estates or in terms of superannuation death benefit complaints.

So in Wills & Estates, to be a de facto domestic couple, you need to be living together continuously for two years or more at the time of the person or one of the parties’ deaths, or you’ve got a child together under the age of 18 years.

Now, I know in family law it’s a little bit broader than that, is that right? That’s correct. And look, these threshold issues can arise in some of our cases and can be hardly fought as you can imagine. Because once you’re deemed to be in a de facto relationship in family law, you can then access the family court for property settlement. So generally in family law matters, you have to have been living together in a genuine domestic basis and there’s a number of factors that we look at so if they’ve been living together for two years, they’ll be considered to be in a de facto relationship, which sounds very similar to your jurisdiction.

If there’s a child of the relationship, then they’ll deem to be in a de facto relationship and if there’s been an intermingling of finances, that would warrant the court to make some sort of adjustment that would then deem that couple to be in a de facto relationship.

Given the divorce process can take some time, particularly if litigation is involved, should an interim Will be prepared as a placeholder?

Yeah, well, look, we try to do the right thing by people and we certainly don’t want people doing their will a thousand times or changing it a thousand times. So it depends and often we’ll look at where they are in the settlement, as Claire said, in the property settlement process.

Even if they haven’t yet had their divorce. The divorce doesn’t impact upon them doing a more finalised or more formal type will. It’s more about, you know, I guess the act of their separation, their property settlement, what are they going to walk away with, especially if they’ve got an interest in entities and the like. So we do try to plan it forward so that we do a will that hopefully doesn’t need to be updated post that property settlement. But often we can’t, we just simply can’t because we don’t know what that person’s going to end up with.

But the thing that I will say here is that even though we need to do an interim will and absolutely cut out that spouse, if there hasn’t been a property settlement yet and one of those parties dies, that spouse can still contest the first to die as well or estate unfortunately.

When someone dies, what is the interplay between a Binding Financial Agreement (BFA) and a Will? Does one take precedence over the other if there is a conflict?

Sorry, I’m to be clear about binding financial agreements. So I guess just to recap, obviously, a will deals with the distribution of assets after death.

Whereas on a very basic level, a financial agreement deals with how property is to be divided in the event of a relationship breakdown or separation. So BFA’s are governed by the Family Law Act, which is national legislation, whereas the Wills and Estates law is state-by-state based.

So I should probably clarify here the difference between certain BFAs because I think that is quite relevant to what we’re discussing here. So a BFA can be entered into by married or de facto parties at different points in time. So a BFA can be entered into before a marriage or de facto relationship, and they’re often referred to as your prenuptial style financial agreements.

You can enter into a BFA during a marriage or a de facto relationship. And you may have heard those BFA referred to as cohabitation agreements. And then you can also enter into a BFA after separation or divorce, following the breakdown of relationship. And so those particular types of financial agreements are simply documenting the property settlement of the parties because there has been a separation.

So really, the most important point to take away here is that BFAs will not come into effect until separation occurs. So with those first two agreements that I just referenced, they will not come into full force and effect until there has actually been a separation. Now in those cases, in order for there to be deemed to be a separation, one of the parties will need to sign a separation declaration, which is included at the back of the financial agreement and serve that separation declaration on the other person for a separation to have occurred.

So once separation has occurred then that BFA or the terms of the BFA will essentially bind the estate and will take precedence over the will in that particular instance.

Now where there hasn’t been a separation, the opposite is the case. The will will take precedence over the terms of the BFA.

But in saying that, where I have seen a few cases where the will has been challenged based on family provision type claims, the court in those instances might still look at the BFA if there is one in existence and the specific terms of the BFA to work out what was the testator’s intention at the time that they signed the BFA and then what was happening at the time that they signed the will as well to work out, you know.

Whether the family provision claim is successful or not. Because it is a test of moral duty at that point. So the courts in family provision claims look at what the test date was as moral duty to provide for that spouse. The act of separation is quite important. If there is a BFA, as Claire said, that’s quite important. It serves as evidence. It’s not binding, but it’s one of the discretionary factors the courts in family provision claims can look at.

What constitutes a separation?

A separation is deemed to have occurred, whether in a de facto or married couple setting, when one person forms the intent to separate.

One person then acts upon that intent and communicates that intent to separate. There’s a number of factors that we look at as family lawyers to determine whether a separation has occurred. So one of those examples might be, and this is an obvious one, where someone communicates to the other person that they want to separate.

The other is when one party moves out of the family home. Well then, obviously that’s going to constitute a separation.

Where it can get a little bit murky is where someone moves into another bedroom within say the family home and you may have heard the term separated under the one roof. And then other things that we look at is is there still sexual intimacy in the relationship? Have the parties separated their finances? And then another one is does the couple present as a couple externally to the outside world?

I think, Claire, it would help our view was to understand what do we do if someone has separated but they have an institute of proceedings before one of the parties has then subsequently died, where does that leave the estate? Can the executor of the estate issue proceedings in that context or not?

It’s a good question and this also does come up with our obviously aging population. So in order to institute proceedings in the family court, both parties need to be alive. So the problem is if one party has passed away and neither of them have issued proceedings in the family court, then the estate cannot issue proceedings for property settlement in the family court on behalf of the estate.

If you have a situation where you have an ageing client, there’s been a separation, it may be that you just issue a bare application in the family court to essentially preserve that party’s rights so that if they do happen to pass away, then the estate can continue those proceedings on behalf of that person. Which is important and I think we’ve seen this play out before because if there is then a subsequent family provision claim on the estate…

We can sort of hold off and wait for that family law proceeding to play out, if that had happened, and it will actually impact on what provision claim can then be brought by that spouse potentially. Yes, absolutely. Can I ask another question, Claire, actually? So sometimes, again, in an ageing population, we’re seeing this a lot now, where someone may lose capacity before they die, but they were in the act or the process of separating.

Can that person’s financial power of attorney, or in the absence of a power of attorney in a court or tribunal-appointed administrator issue that proceeding on their behalf in the context of separation. So in that case, in the family court, we call them case guardians. Okay. And a case guardian would need to be appointed in that type of situation. And they can run the family court matter on behalf of that person. They’re obviously difficult cases.

Reasons, but we do come what same as you we’re coming across those types of matters more and more in the work that we do. Okay that’s interesting and maybe something for everyone to consider when they’re doing financial powers of attorney as part of their estate planning whether they need to put in a particular condition in that document that empowers or allows their attorney, if and when it becomes necessary, although it’s quite complex and it might be contentious under your jurisdiction obviously, to have the ability to bring those proceedings should it be necessary at the relevant time.

BFAs versus a will.

What I’m thinking, Teresa, would be helpful if I went through a few cases that sort of set out the example between BFA versus a will and what’s going to take precedence, because I did a little bit of research before coming here today just to make sure that I was fully across the latest cases. Research is always good. So I thought that might be helpful for you and also your viewers.

So these cases that I found, they’re actually in the Wills and Estate jurisdiction, so you’ve probably heard of them. So they’re not cases that have occurred in the Family Court, but they’re still relevant to these issues. So the first of those is Hills and Chalk. And this case involved a situation where the terms of the will and the prenuptial style BFA were the same. They were identical. So essentially, what had happened there was the party had entered into a prenuptial style BFA.

And at the same time entered into a will which provided that they each keep their own assets, liabilities, superannuation, so their respective property and that their property was then left to their children from previous relationships. And both documents sort of mirrored that.

Now the surviving de facto partner, sorry, I should say one of the de facto partners, died, passed away and the surviving de facto partner then made a family provision claim, saying that they were not adequately provided for, pursuant to the will. And the court in that situation held that whilst the prenup was not legally binding of itself on the estate, which is what you’ve said before, Teresa. And that’s because separation had not occurred. So the agreement was not in full force and effect. It was, however, highly relevant as to evidence of the intention of the parties at the time.

And ultimately, the family provision claim was unsuccessful, and the court relied heavily on the fact that the documents had been prepared at the same time. There had been no sort of material or significant change in circumstance since the making of those documents, and therefore that strongly informed the outcome in that case. So I think the main point that I want to make here, Teresa, I’m sure you would agree with me is you have to ensure that the will and the terms of the BFA are consistent, or you’re otherwise potentially going to run into some issues.

Absolutely. I think the issue, Claire, and I’m sure you can attest to this, is that often clients who are seeing a Wills and Estates lawyer may not be seeing a family lawyer and vice versa. Often we get confused in the sense of what we do. So some people think you probably do Wills and I get asked about binding financial agreements. So I think it is difficult and it’s about feeling comfortable to have those open conversations with your legal representative, I guess, in that sense. Absolutely.

Completely agree, and interestingly, there was another case that I found which was sort of the opposite fact scenario so this was the case of Spatieri and Vicello, which was a 2020 Supreme Court case, and this case involved a situation where the terms of the BFA and the will were inconsistent so opposite of what we discussed before.

In that case a BFA same thing pre-nuptial style BFA was signed between the parties and under the terms of that BFA the de facto spouse was left $200,000. Now the other de facto spouse then prepared his will and in the final version of the will that signed there was no mention of the $200,000 being left to surviving spouse and his estate was essentially distributed evenly between his adult kids from a previous relationship.

So sure enough the de facto spouse passes away, surviving spouse challenges the will, pursuant to the family provision clauses and in that instance the court had to look at once again the intention of the parties and there had been a number of versions of the will prepared and they found that ultimately given the existence of the BFA that the intention of the deceased de facto spouse was that this the spouse should be left $200,000.

And in that case, they were successful in their family provision claim. So once again, I think it just drives home the message that it is so important to have your will and your BFA consistent. Absolutely. And I think, Claire, you’ve heard me say this many times. It really is a two-pronged approach because it’s looking at it from an inter vivos perspective.

So if you’re living and something happens to the relationship that’s under family law and looking at the binding financial agreement but also on the death side but ensuring that those documents or the provisions of those documents are consistent. I think in terms of the cases you were just speaking about Claire too I think from the court’s perspective it is helpful if that binding financial agreement is done closely in time to that whatever the last will is because if it was done a lot earlier in time the court probably wouldn’t place a lot of weight on the intention prefaced in that binding financial agreement because it may have changed.

So again why it’s so important to continually keep an eye on those both of those documents, your wills, your powers of attorney and your binding financial agreements and ensure that they’re consistently updated and reviewed.

Agree.