Baby boomers, Australia’s wealthiest generation, are projected to transfer $3.5 trillion to younger generations by 2050, primarily through inheritance. This significant transfer of wealth is expected to make an enormous impact in the coming years by reordering the wealth distribution in society.
Simultaneously, rates of separation and divorce are rising, along with second and subsequent relationships and blended families. This has led to an unprecedented demand for wealth protection plans to ensure legacies are preserved upon death.
What can be done?
Financial Agreements
A financial agreement can be made before or during a marriage or de facto relationship, or after divorce or the breakdown of a de facto relationship. Different sections of the Family Law Act 1975 (Cth) (‘the FLA’) govern each type of agreement. This article will mainly focus on pre-separation agreements.
Key Provisions of the Family Law Act 1975 (Cth)
The FLA states that one of the matters a financial agreement can deal with is the property or financial resources of either or both the spouse parties in the event of the “breakdown” of the marriage or de facto relationship.
“Breakdown” is defined in section 4 of the FLA as being not a breakdown of the marriage or de facto relationship “by reason of death”.
A financial agreement comes into force and effect upon a separation declaration being signed by one of the spouses. The separation declaration must state that:
- The spouse parties lived in a de facto relationship (if the agreement relates to a de facto relationship, not a marriage).
- The spouse parties have separated and are living separately and apart at the declaration time - the court has held that spouses can live "separately and apart" even when they both reside in the same home.
- There is no reasonable likelihood of cohabitation being resumed.
Interaction with Estate Planning
- A Will takes effect upon the death of the will-maker. This means that regardless of whether a party to a financial agreement dies before or after the agreement comes into effect (e.g. the relationship ends as a result of separation rather than death), then the agreement, insofar as it relates to how the property and wealth of the parties are to be dealt with, will apply ahead of the terms of the Will being carried out
- The financial agreement will continue to operate in favour of, and is binding on, the legal personal representative of the deceased party.
Family Provision Claims under the Succession Act 1981 (Qld)
- Historically, challenging a will makers wishes has not been very common because the legal fees associated as such may have outweighed the benefit. With property values soaring, disputes over inheritances have become more common and more frequent. It is worth noting that in 2018/19, the average inheritance was $125,000 and 50 was the typical age of a recipient.
- Under the Succession Act 1981 (Qld), eligible persons (e.g., spouses, children, dependants) can make a family provision claim if they are left without adequate provision from the deceased’s estate.
- These claims can sometimes conflict with property settlements under the FLA, as parties may assert rights over the same estate assets. Courts aim to avoid double-dipping in such disputes.
- The Family Law Act's property settlement may account for successful family provision claims, which subsequently influences how inheritances are divided during divorce or separation proceedings.
Spousal Maintenance
- A financial agreement can also deal with the maintenance of either of the spouse parties to a marriage or de-facto relationship.
- Maintenance is separate to the adjustment of property and is an amount of money provided by one spouse party for the financial support of the other.
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Financial agreements made for married couples can deal with maintenance during the marriage, after divorce or both during the marriage and after divorce.
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Financial agreements made for de facto couples can deal with maintenance in the event of a relationship breakdown.
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There is no requirement that a separation declaration be made for provisions relating to the maintenance of the parties to come into effect.
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Where a maintenance order is made by the court pursuant to section 74 or section 90SE of the FLA, the order automatically ceases to have effect upon either the death of the payee or payer under the order or the marriage of the payee, unless in special circumstances the court orders otherwise.
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There are, however, no similar provisions in the FLA that provide for cessation of a parties’ obligation to pay maintenance pursuant to a financial agreement in the same circumstances.
- As such, an obligation to pay spouse maintenance pursuant to a financial agreement will not end upon the death of a party to the agreement and is binding on the legal personal representative of that party pursuant to section 90H or 90UK of the FLA.
Conclusion
The relationship between binding financial agreements and estate claims is an evolving area of law rarely tested by the courts.
With the anticipated “great wealth transfer,” an increase in litigation in this domain is expected. It is vital to ensure that your financial agreements and estate planning documents are consistent and aligned. If you are preparing both a BFA and a Will, it is important to carefully consider how these documents interact. Key considerations include:
- Understanding the estate planning implications of your BFA.
- Reviewing your Will, particularly if you are part of a blended family, to ensure it aligns with any BFA provisions, such as those for spousal maintenance.
Taking these steps now can help safeguard your intentions and minimise the risk of disputes in the future.
The blog published by SM Family Law is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog publisher. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult SM Family Law on any legal queries concerning a specific situation.
