Don't let your relationship breakdown undo your estate planning
Wills and Estates: 17 September 2019
If you are going through a relationship breakdown or divorce, you probably have three things in mind: protecting your kids, protecting your assets, and moving on with your life. Updating your will and estate plan is an important step in this process that ticks all three of those boxes, but it is often overlooked and can have devastating consequences if left too late.
If you are going through a relationship breakdown, you probably have three things in mind: protecting your kids, protecting your assets, and moving on with your life. Updating your will and estate plan is an important step in this process that ticks all three of those boxes, but it is often overlooked and can have devastating consequences if left too late.
This article will teach you the pitfalls of having an out of date estate plan and how to avoid them.
What is a spouse normally entitled to?
This depends on two key factors:
- Do you have a valid will?
- If not, are you in a married or de facto relationship?
If you have made a will, this will determine who benefits from your estate. Most spouses who make a will usually leave all or most of their estate to the other, but you are free to make a will however you want, including by excluding your spouse entirely.
If you do not have a will, your estate will be dealt with under the laws of intestacy (literally 'no testament'). This varies from state to state, but in Victoria:
| If you die without children, or with children whose other parent is your spouse | If you die leaving children who are not your spouse's children |
| Your spouse is entitled to the whole estate. | Your spouse is entitled to:
|
For your spouse to be eligible to receive your estate on intestacy, they must either be married to you or qualify as your 'domestic partner' (or de facto partner). In Victoria, a domestic partner is someone who has:
- Lived with you as a domestic partner continuously for 2 years or more immediately before your death; or
- Lived with you as a domestic partner and is the parent of a child with you; or
- Registered a relationship with you under a state law.[2]
Determining whether a person lives with you as a domestic partner, rather than as a friend or housemate, is assessed on a number of factors including the length of your relationship, how your relationship is recognised by family and friends, financial and personal interdependence, and the care and support of any children.
For the purpose of intestacy, a married spouse and a de facto partner are treated exactly the same.
But I'm separated, why is my ex entitled to anything?
Until your divorce is officially declared effective by a court order, your ex is still your spouse for most legal purposes. Divorce is a lengthy process, as the application cannot be commenced until you have been separated from your spouse for 12 months. As your priority may be ensuring that your custody and property arrangements are settled first, you may not officially divorce until years after your separation date (and we have seen cases where the step is forgotten altogether!).
I'm divorced€”is my Will OK?
Once you are divorced, s 14 of the Victorian Wills Act[3] provides that:
- Any gift you made to your former spouse is revoked;
- Any appointment of your former spouse to a position (e.g. as executor) is revoked;
- However, an appointment of a spouse as a trustee of assets for minor children may remain valid.
The revocation takes effect as if the spouse predeceased you, so that the remaining provisions of your will take effect.
Importantly, the Wills Act only revokes these provisions upon the making of a court order ending a marriage, and not where a de facto relationship ends. If you have made a will in favour of a de facto partner, you must update your will to change any provisions dealing with your partner.
If you have divorced, you need to check the following in your will:
- Do you have an appropriate backup executor in place? You may find that you do not have a backup executor, or that the chosen backup executor is a family member of your former spouse. Your executor is responsible for administering your estate and, depending on the terms of the will, may also be responsible for managing any inheritance left to your minor children. If you don't have a backup executor, and your minor children are your main beneficiaries, it may be that your ex-spouse would be appointed administrator of your estate on behalf of your minor children (by 'letters of administration during minority').
- Are your back-up beneficiaries appropriate? If your will was made before you had children and no provision is made for them, this should be updated.
I haven't finalised my divorce/property settlement yet. What happens if I die?
If you have ongoing family law proceedings in court, your estate can continue in these proceedings after your death through your executor. However, if the proceedings have not formally commenced then they cannot be commenced after your death or your spouse's death.
Under Victorian law, a deceased estate can be challenged under family provision laws. These laws allow certain 'eligible' family members or dependants to apply to the court to receive a greater share of your estate then they receive under your will, or because of the intestacy laws.
A family provision application can be brought by:
- A married spouse (noting that a married spouse will remain eligible until a divorce order is given effect);
- A domestic partner (de facto partner) as at the date of death; or
- A former spouse or domestic partner, if the person was eligible to bring proceedings under the Family Law Act 1975 at the date of the deceased's death but is now prevented from doing so.
Can I appoint a guardian of my children in my will?
Yes, the Victorian Marriage Act 1958 allows you to appoint a guardian in your will.[4] The appointment of a guardian in a will is a valid and binding decision, although it may be reviewed by a family court if this is in the best interests of the child.
Importantly, you can appoint a guardian to act jointly with the surviving parent of the child, although the surviving parent has the right to object to this arrangement.
This is obviously a serious decision and specialist advice should be sought before taking any steps to appoint a guardian in your will.
Don't forget your powers of attorney!
If you have made an Enduring Power of Attorney, or appointed a Medical Treatment Decision Maker, these appointments are not revoked by your separation or divorce from your spouse or partner.
It is incredibly important to update these documents, as they:
- Come into operation when you have lost mental capacity and are at your most vulnerable;
- Give extensive power to the appointee, to make decisions about your legal and financial affairs and your ability to consent to medical treatment; and
- Can only be revoked after you have lost capacity by an application to VCAT, which can be stressful, difficult, and might result in the appointment of a trustee company to manage your affairs rather than a family member.
Don't forget your super!
Superannuation is a significant asset on your death, particularly where your policy includes life insurance coverage. While super may be 'split' between you and your spouse as part of your family law proceedings, if you fail to update your binding death benefit nomination with your fund it is entirely possible that:
- Your spouse will be eligible to receive all of your superannuation benefits, if your divorce is not finalised upon your death;
- Your superannuation interest may be paid to your estate, where it could be open to a claim under the family provision legislation (see above).
Importantly, there is no specific length of time required for you to be in a de facto relationship with a person before they are eligible to benefit from your superannuation on your death. It is important that if you are commencing a de facto relationship that you make a binding death benefit nomination as soon as possible.
Further, if you have a self-managed superannuation fund, it is important to ensure that control of the fund does not pass to your spouse this may be achievable through your will, or through other documentation.
Aitken Partners has experienced teams in wills and estates law and family law, including accredited specialists in both fields. Call or email us today for advice or assistance.
[1] Current rate for the 2019/20 financial year, indexed annually.
[2] Find out more on this link at Justice Victoria Website.
[3] Most other states and territories have a similar provision. Some also provide for revocation on the deregistration of a registered relationship.
[4] S 135.