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Protecting Your Estate From Family Provision Claims - Family Law Perspective


One of the most often overlooked issues after separation is a thorough examination of your Estate planning strategy and needs.





Avoid Informal Agreements Like a Plague!


Firstly, it goes without saying that before you even look at your Estate planning following separation, you have to ensure that your family law property settlement has been formalized either by a Court Order (Consent Orders or a final Court Order) or a Financial Agreement pursuant to the Family Law Act 1975.


Unfortunately, not everyone appreciates the importance of formalizing their property settlement agreements for various reasons, such as for instance, when the parties are unable to refinance and buy out the other party’s share in the property and decide in their infinite wisdom to keep the property as joint tenants for the sake of their children. Any agreement to this effect will not be approved by the Court and will not be worth the paper it is written on.


Let’s take an example of Irene and Paul.


They have been married for 5 years and have 1 child, Marcus aged 3. Marcus has special needs and is extremely attached to the parties’ Central Coast property, which is the only asset of the relationship, held by Paul and Irene as joint tenants. Irene also has a child from a previous relationship, Lachlan, who is 16 years of age. Irene’s mother, Mary lives with the parties and assists with the care of Marcus and Lachlan.


Paul and Irene want to separate and have discussed their property settlement options, but neither of them wants to sell the property or is able to buy out the other party’s share. Paul has proposed to Irene that they continue to reside together under the one roof with Irene’s mother and share the outgoings for the property until such time that either Paul or Irene can afford to refinance the mortgage on the home and buy out the other party's share. Paul and Irene also agree that the children and Irene's mother will have a life interest to reside in the property, irrespective if the property is later transferred to any one party or kept jointly.


Irene is very happy with this agreement as she retains her interest on title of the property and if she is unable to refinance the mortgage and keep the property herself, she is happy for Paul to do that and to receive 50% of the equity in the property, knowing that her mother and children will remain living in the property regardless.


Irene is of the impression that the informal verbal agreement with Paul protects her rights and that nothing can go wrong.


3 years later Irene passes away due to complications from contracting a new strain of COVID-19. As the property was registered in joint names (joint tenants and not as tenants in common), Paul becomes the sole owner of the Central Coast Property.


Mary and her grandchild, Lachlan, attend upon a local solicitor with a copy of Irene’s Will, which she had done after separation with Paul. The Will states that all of Irene’s Estate is to be divided equally between the two children, Lachlan and Marcus. Unfortunately, the Central Coast property does not form part of Irene’s Estate and her only legal possessions are some personal items and $200.00 held in her bank account.


Several weeks later Paul states that he had never made any promises in relation to a life interest and asks Mary and Lachlan, who is now 19, to vacate the property.


The above is just one example of how an informal property settlement may go wrong from an Estate planning perspective. The simple solution in Irene’s case would have been the sale of the property and division of the proceeds of sale as agreed, and formalizing such agreement by way of consent orders or a financial agreement. At the very least, Irene should have unilaterally severed the joint tenancy to become a tenant in common in the Central Coast property holding 50% interest, which would have then formed part of her Estate.


Let’s consider another example.


Adam and Nicole have been married for 3 years and have no children. Adam has 3 children from previous relationship. Adam owns real property solely in his name. There are no other assets, apart from some funds in the bank accounts and personal items. After 3 years of marriage the parties decide to separate. They agree that due to their short relationship, Adam will retain all of his assets and Nicole will retain all of her assets. They decide not to spend money on legal fees and do not do any Consent Orders or Financial Agreement.


5 years after separation Adam is involved in a car accident and passes away. As the parties did not formalize their property settlement, Nicole has significantly better prospects of success with a Family Provision Claim against the deceased Estate and due to her difficult financial position and unemployment she is awarded 30% of the sale proceeds of Adam’s property. Adam’s children end up receiving 70% of the sale proceeds of the property in equal shares, instead of 100% in equal shares as was stated in Adam’s Will.


For Adam’s children, the above situation may have been avoided had the parties formalized their property settlement on the basis of an adequate provision being made to Nicole and agreed to forgo their rights to a claim against each other’s Estate.


To reiterate, parties need to be aware that there are serious risks involved for each of them when not formalizing their property settlement agreement, which also extend to beyond their lifetime. In particular, the ex-spouse of the deceased would normally be entitled to commence a Family Provision Claim against the Estate of the deceased in the circumstances where there has been no formal property settlement and the ex-spouse can demonstrate a financial need.


Minimizing Risks After Consent Orders or Financial Agreement


It should be noted, however, that even after you have successfully formalized your family law property settlement agreement, your former partner could still make a Family Provision Claim against your Estate after you pass away in certain circumstances, although such cases are quite rare. In assessing such Family Provision Claim, the Court will take into account various factors set out in section 60 of the Succession Act 2006 NSW, including the nature of the relationship of the applicant and the deceased, the size of the Estate and any provision made for the applicant by the deceased person, either during the deceased person's lifetime or made from the deceased person's estate.


Therefore, if Consent Orders or a Binding Financial Agreement provided for the deceased to retain most of the assets of the marriage, a Family Provision Claim by the ex-spouse of the deceased would have more prospects of success, if a financial need could be demonstrated.


You should also note that whilst it is not possible to fully contract out of making a family provision claim, the parties can sign a Deed of Release or include appropriate terms in the Financial Agreement to confirm their intention to abandon their respective rights to bring a family provision claim against each other’s Estates. The agreement to forgo these rights would then need to be approved by the Supreme Court of NSW, failing which it remains essentially a mere indication of intentions and not legally binding.


In summary, we recommend that you always formalize your family law property settlement agreement by way of obtaining Consent Orders or executing a Financial Agreement, and ensure that appropriate terms are agreed in relation to foregoing of the parties’ rights against each other’s Estate. You should also revise or do a new Will following your family law property settlement to ensure your testamentary wishes are up to date and your Will is valid.


Issues of separation and succession planning always require careful case-by-case consideration and analysis by an experienced lawyer to minimize the risks of undesirable outcomes. Do not hesitate and contact Surge Legal now for a free consultation to discuss any issues relating to separation and/or succession planning on 02 8722 5021.


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