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Estate Planning

Financial Agreements

A Financial Agreement is an effective tool for couples to determine ownership of assets and/or liabilities of a marriage or de facto relationship.

A binding Financial Agreement will continue to operate despite the death of a party.  It will operate in favour of, and be binding on, the legal representative of that party (ss 90DA(1A) and 90H of the Family Law Act for married couples and ss90UF(2) and 90UK for de facto couples).

Making a Will

Although a Financial Agreement can be effective at setting out the ownership of assets and liabilities of an existing or past relationship, it does not take the place of a Will.

Parties to a Financial Agreement are advised to draw up a Will to enable their assets to be legally transferred in accordance with their wishes.  A person is not prevented from leaving property or assets to a partner (or ex-partner) if a Financial Agreement exists between them.

What if I don’t have a Will?

If a Will is not in place, any assets and liabilities will be dealt with according to strict rules and procedures governed by your particular State.  This may result in a drawn out process which does not take into account your personal situation or your preferences of who is to receive your assets.

When should I review my Will?

It is advisable to review your Will frequently to ensure it still reflects your wishes as your life changes and new situations evolve.

In particular, you should make immediate steps to review and if necessary, update your Will if:-

  • you get married;
  • you separate or get divorced;
  • you have children;
  • the executor is no longer willing or able to act;
  • the death of a beneficiary, spouse, executor or trustee;
  • the asset pool changes and specific assets bequeathed in the Will have been sold and/or new assets have been brought.

What if I made a Will during marriage and I’m now divorced?

If you made a Will during marriage and the marriage has now ended, you should make immediate plans to review your existing Will.

If you divorce, you may find that:-

  • the whole of your Will (if you are in Tasmania or Western Australia); or
  • the specific provisions within your Will that confers benefits to an ex-partner (if you are in Queensland, New South Wales, Victoria, ACT, South Australia and the Northern Territory),

will be automatically revoked.

If you have appointed your former spouse to be the executor or trustee of your estate or you have conferred other powers on him or her, these powers may also be automatically cancelled, so it is essential that you update your will to reflect your current situation and wishes.

I made my Will prior to marriage.  Will the marriage affect my Will?

Marriage may also cancel your Will, except where your Will has been expressed to be made in contemplation of the marriage.  If this is the case, there should be a paragraph in your Will stating that you are intending to get married, naming the person whom you are intending to marry and stating that the Will is made in contemplation or consideration of that marriage.

Contesting a Will under a family provision application

A person has the freedom to dispose of their assets after death any way they wish.  However, there are some limits to this freedom.

Even where you have taken the proactive steps of making a Binding Financial Agreement and a Will, your wishes may still be contested by an eligible person under family provision legislation.

Family provision legislation varies slightly from state to state.  It allows an eligible person to make a “family provision” application to the Court if they have not been provided for in a will.

An eligible person may be a spouse (including a de facto spouse or ex-husband or wife), child/ren (including adopted and step children), grandchildren or other dependents. 

The exact requirements required in order for an application to be successful differ from state to state.  In New South Wales a court will only make an order granting a share of the estate to an eligible person if it finds that “adequate provision” has not been made for that person’s proper maintenance, support, education and advancement in life.

Whether or not a person succeeds in their application depends on the conclusion of the Court.  The Court will have regard to the intentions and wishes of the Will maker, as well as the circumstances of the person who has made the application, such as the applicant’s financial position, whether or not he/she was dependent on the Will maker, the relationship between the Will maker and the applicant, the value of the estate, the beneficiaries and any obligation of the Will maker to the beneficiaries and other pertinent issues.

While Binding Financial Agreements are not conclusive in determining a family provision application, they may be taken into consideration by the Court to better understand the relationship and intention of the parties.  And this may make a big difference to a potential claim, as evidenced in court decisions in cases such as: Hills v Chalk and Kozak v Matthews.  In these cases, the court found that the applicant’s were not entitled to receive a share of the estate of their deceased partner.

Summary of Kozak v Matthews

These proceedings took place in Queensland, and the applicant, Peter Kozak, relied on s 41(1) of the Succession Act 1981, (Qld):-

If any person (the ‘deceased person’) dies whether testate or intestate and in terms of the Will or as a result of the intestacy, adequate provision is not made from the estate for the proper maintenance and support of the deceased person’s spouse, child or dependant, the court may, in it’s discretion, on application by or on behalf of the said spouse, child or dependant, order that such provision as the court thinks fit shall be made out of the estate of the deceased person for such spouse, child or dependant”.

In assessing such an application, the Court needed to determine:-

  • whether the deceased left the applicant, Mr. Kozak, without adequate provision for his proper maintenance and support, and if so,
  • what provision should be made for him. 

The deceased and the applicant were in a de facto relationship.

Prior to commencing his relationship with the deceased, Mr. Kozak had lived in a caravan on a farm owned by the deceased’s family, where he worked as a labourer.  He had no savings, and received a modest income.

Not long after beginning their relationship, the deceased was diagnosed with breast cancer.  She was given a prognosis of only two years, although she lived for four more years. 

She subsequently purchased a home in which they both resided.  A few months after the purchase of the home, the deceased and Mr. Kozak made a Financial Agreement, which included the following provision:-

“Peter acknowledges that he has made no financial contribution to Jacqueline’s assets and agrees that in the event that they cease to cohabit or in the event of Jacqueline’s death, he will make no claim upon her or upon her estate as the case may be in respect of her assets.”

 The deceased also made a Will at a later stage, conferring all of her estate on her children.  Under the Will, Mr. Kozak was granted the right to reside in the home for a period of 12 months following her death at no cost, after which the deceased’s 5 children would be entitled to the home.

The Court took into account Mr. Kozak’s role of carer of the deceased, although only in the last 3 months of her life were the deceased’s care needs all absorbing, during which time he had assistance from others in his role as carer.

The court also considered the contrast in the lifestyle of Mr. Kozak.  Prior to the relationship, he lived in a caravan with a modest income.  While with the deceased he lived a more affluent lifestyle, in which he enjoyed dining out, shopping, numerous holidays and living in the deceased’s home.  Mr. Kozak did not make any financial contribution, apart from a modest contribution to entertainment, food and similar items.  The deceased had also discharged a debt of $7600 owing on Mr. Kozak’s vehicle and given him $5,000 shortly before she died.

The court weighed these considerations with the fact that both Mr. Kozak and the deceased knew almost from the outset of the relationship that she had a terminal illness.  It was mutually understood that he would make no claim on her estate and the relationship progressed on this mutual understanding.

The court found that the relationship proceeded on the assumption, reinforced by assurances from Mr. Kozak that the Financial Agreement would be honoured.  Mr. Kozak knew and understood the effect of the deed. 

The deceased never represented to Mr. Kozak that she would make any further provision for him in her will, and she took active steps to ensure he was under no  misapprehension in that regard.  He expressly accepted that to be the position, and did not demur.

It is interesting to note that the Court placed such importance on the provisions of the Financial Agreement.  This was the case, even though the Agreement was not technically binding.  Mr. Kozak had not received legal advice prior to signing the agreement which is a legal requirement in order for the agreement to be legally binding.  Even further, Mr. Kozak purportedly did not even read the document before he signed it.  However, he admitted that he did understand the effect that the document would have.

The Court concluded that Mr. Kozak was not entitled to a greater share of the deceased’s estate, and ordered that he pay the estates costs to defending his application.

To see a full transcript of that case, click here:

http://archive.sclqld.org.au/qjudgment/2007/QCA07-296.pdf

How can I prevent a Family Provision Application against my estate?

If you are aware that you are not making provision in your Will for a person who is an ‘eligible person’ (for example, a person who could be seen as dependent on you), then there are steps you can take to limit any potential claims.

You can make a statutory declaration in support of your Will, outlining the reasons why you have not made provision for a certain person/s.  You should make the statutory declaration clear and concise and avoid any emotionally charged statements.  This will be accepted as evidence in court if your Will is ever challenged.  It won’t be definitive but it will assist the court understand your intentions and be taken into account when reaching their decision.

A Deed of Release is a way in which a person can “opt out” of family provision legislation.  Although technically you can’t contract out of your rights under family provision legislation, a deed of release can be taken into consideration by the Courts as evidence of the parties intentions.  An exception to this is New South Wales, which allows you to file a Deed of Release.  If it is approved by the Supreme Court, it will be bind the parties and prevent a family provision claim.  The court may revoke it’s approval of a release, generally in instances of fraud or undue influence.

The Financial Agreement Kit provided by RP Emery & Associates provides a complementary Will kit. 

 

 


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