With the annual leave season starting in earnest over the next couple of weeks and many advisers taking either extended leave or alternatively taking the opportunity to catch up on things not progressed during the calendar year, last week’s post will be the final one until early 2025.
Similarly, the social media contributions by both the View and Matthew will also largely take a hiatus until the New Year as from today.
Thank you to all of those advisers who have read, and particularly those that have taken the time to provide feedback in relation to posts.
The 2024 edition of this book, containing all posts over the last year, edited to ensure every post is current, indexed and organised into chapters for each key area should be available early in 2025.
Very best wishes for Christmas and the New Year period.
** for the trainspotters, the title today riffed from one of my favourite modern-ish Christmas related tunes, namely ‘How to make gravy’ by Paul Kelly.
Previous posts have considered the impact of separation and divorce of a marriage on estate planning documentation.
As mentioned in last week’s post, the general view has been that analogous situations on the breakdown of a de facto relationship do not have the same consequences.
As last week’s post concluded however, whenever there is a significant change in a personal relationship, best practice dictates that there be an immediate review of all estate planning arrangements.
The case of Blyth v Wilken [2015] WASC 486 is a stark reminder of this principle.
Relevantly, the factual matrix here involved a willmaker who left a final will giving the majority of his estate to his ‘de facto wife’. The relationship between the will maker and his de facto ended after the will was made and around three years before he died. No updated will was prepared.
In deciding that the former de facto wife was not entitled to receive anything under the will, the court essentially applied the same principles that would have been relevant had the couple have been married and subsequently divorced.
In other words, the court decided that the gift was made solely because of the de facto relationship.
Once that relationship ceased, the court determined it would have been the willmaker’s intention that the gift should also fail.
In most respects, the decision here contradicts the generally accepted position and arguably leads to a conclusion that if the willmaker had simply referred to his spouse by her name and had not mentioned ‘de facto wife’, then the gift would have in fact stood.
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the XTC song ‘Ball and chain’.
Previous posts have highlighted the significant impact a change of relationship status can have on any estate planning arrangements.
The conservative approach is to always update estate planning documentation as soon as it is clear that there is either a new relationship that is evolving towards de facto status or marriage, or a previous relationship that has no real prospect of a reconciliation following an initial separation.
This said, it can be important to understand the broad rules that apply in the event of marriage and divorce on both wills and enduring powers of attorney (EPA).
The following table sets out the broad position, which unfortunately, is inconsistent across each Australian jurisdiction and also as between the situation for wills and EPAs.
The general position is that neither the commencement nor ending of a de facto relationship has any impact on estate planning documentation. This said, some jurisdictions are evolving the rules in this regard as well, for example on the ending of a de facto relationship in Queensland the position is now largely the same as for the ending of a marriage (ie partially revoked).
State
Will – Marriage
Will – Divorce
EPA – Marriage
EPA – Divorce
Victoria
Partially revoked
Partially Revoked
No effect
No effect
New South Wales
Partially revoked
Partially Revoked
No effect
No effect
Queensland
Partially revoked
Partially Revoked
Revoked
Revoked
Tasmania
Partially revoked
Partially Revoked
No effect
Revoked
South Australia
Revoked
Partially Revoked
No Effect
No Effect
West Australia
Revoked
Revoked
No effect
No effect
Northern Territory
Revoked
Partially Revoked
No effect
No Effect
Australian Capital Territory
Revoked
Partially Revoked
Revoked
Revoked
Notes:
On marriage, wills in all jurisdictions are at least partially revoked, unless they are made in contemplation of marriage
In all jurisdictions, following divorce, an ex-spouse is automatically excluded from receiving direct benefits under the will.
Most States and Territories allow a willmaker to make a gifts, following divorce, directly to an ex-spouse where that intention is expressly stated in the will. If this is the case the disposition will still be valid.
Western Australia is the only jurisdiction where all dispositions to ex-spouses following divorce are automatically revoked.
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the XTC song ‘Life begins at the hop’.
Recent posts have considered various aspects of the leading cases where two parties owe mutual liabilities or obligations, and the ability to set off the liabilities against each other through a book entry.
It is however important to note that generally, journal entries of themselves have no legal effect.
Arguably the leading case in this regard is Manzi v Smith [1975] HCA 35.
The key quote out of this decision is as follows:
‘We were referred to cases in which a payment of money was held to have been made by means of entries in books of account. But in those cases the entries represented the agreement of the appropriate parties….
These decisions, quite clearly, are not authority for the proposition for which they were advanced, namely, that a payment of money was made by the making by the company of a journal entry in the books of account without reference to, or without the agreement of, the persons said to be the recipients of the money. The company's assertions in its books of account did not establish the indebtedness of the appellants or any payment of money in discharge of that indebtedness.’
The Tax Office similarly has confirmed that while book entries record transactions having legal consequences, they do not of themselves constitute transactions. In other words, a unilateral action by one of the parties, such as a mere entry in its books of account, does not change the liabilities between the parties.
This means that in any transaction it is important that there is a valid binding agreement (or agreements) supporting the existence of the arrangements to which any journal entries purportedly relate.
As usual, please contact me if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Johnny Cash song 'The singing star’s queen'.
Following on from recent posts it is important to remember that not all of a bankrupt’s property automatically vests in a trustee in bankruptcy.
A summary of the types of assets that do not vest in the trustee, and in turn are therefore not divisible amongst creditors, is set out in section 116 of the Bankruptcy Act and includes:
property held by the bankrupt in trust for another person;
the bankrupt's household property;
personal property of the bankrupt that has sentimental value for the bankrupt;
the bankrupt's property that is for use by the bankrupt in earning income by personal exertion, within certain limitations;
property used by the bankrupt primarily as a means of transport, within certain limitations;
policies of life assurance in respect of the life of the bankrupt or the spouse or de facto partner of the bankrupt;
certain superannuation payments, including under split orders following a family law property settlement;
the rights of the bankrupt to recover damages or compensation for (among other things) personal injury or wrong done to the bankrupt.
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Wonder Stuff song ‘Welcome to the cheap seats’.
Recent posts have considered various aspects of the interplay between the Family Law Act and Bankruptcy Act.
In 2006, Federal Magistrate John Walters, released a paper titled 'Some Aspects of the Interaction of Bankruptcy with Family Law' which set out a number of the key factors likely to be relevant in balancing the interests of spouses and a trustee in bankruptcy.
A summary of the factors mentioned is as follows, in the context that the overriding objective is to effect a just and equitable division of property between the parties to the marriage while also taking into account the legitimate interests of creditors -
has a party to the marriage acted recklessly, negligently or wantonly with matrimonial assets and reduced or minimised their value;
the non-bankrupt spouse's knowledge of the events leading to the other spouse's bankruptcy, including (for example) to what extent, the non-bankrupt spouse has either benefited from, or contributed to, the bankrupt spouse's insolvency;
when and how a relevant debt was incurred by the bankrupt spouse, and whether, for example, the debt was incurred in deliberate or reckless disregard of the non-bankrupt spouse's potential entitlement;
the factual circumstances surrounding the commencement or continuation of the property settlement proceedings – including, the perceived objective reasons, such as any strategic or tactical plan or initiative designed, in some way, to insulate the assets of the family (or a member of the family) from creditors;
whether and in what manner the creditor pressed or pursued – directly or indirectly – their rights in relation to the payment of the debt prior to bankruptcy, or prior to the commencement of proceedings in the Family Law Court, and whether the creditor did so in a timely fashion;
the overall conduct of all relevant parties, including the making of full and frank disclosure of their respective financial positions at all relevant times;
whether the debts were incurred pre or post separation; and
the overall financial circumstances of the non-bankrupt spouse and the children of the parties during the period since the incurring of the relevant debt or debts, and at the time of the property settlement proceedings (including the effect on the non-bankrupt spouse and the parties' children of the orders proposed by the parties to the proceedings).
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the XTC song ‘Scissor man’.
Last week's post provided an overview of the legislative changes requiring the family court to take into account the rights of creditors as part of any property settlement.
There have been a number of decisions that have applied the changed regime, a summary of a few of the key decisions and outcome is set out below.
Trustee of the Property of G Lemnos and Lemnos (2009) FLC 93-394 - the interests of unsecured creditors do not automatically prevail over the interests of the non-bankrupt spouse. The Court must balance the competing claims. Here the non-bankrupt wife was at least aware of the bankrupt husband's activities and therefore had to bear some of the responsibility owed to creditors.
Debrossard & Official Trustee in Bankruptcy [2011] FamCA 648 - Having analysed the contributions of the spouses it was clear that the non-bankrupt wife had contributed to creation of the available assets. The appropriate division of property was held to be 60:40 to the wife's benefit as between her and the husband. As the husband was bankrupt the matrimonial property was distributed 60:40 between wife and trustee in bankruptcy respectively.
Sutherland v Byrne-Smith [2011] FMCA 632 - a relatively complex factual matrix was further complicated by a lack of documentary evidence. Having considered the individual contributions made by the couple towards the property the court treated both parties as having contributed equally towards the property which was the main asset of the parties. Therefore 50% of property or sale proceeds from property passed to the non-bankrupt spouse with the balance 50% passing to the creditors of the bankrupt.
Next week's post will consider the main factors the courts appear to take into account in this area.
As usual, please make contact if you would like access to any of the content mentioned in this post.
** For the trainspotters, the title of today's post is riffed from the Wonder Stuff song ‘Can’t shape up’.
begins%20(at%20the%20hop)%20by%20Matthew%20Burgess.jpg "View Legal blog - Relationship status changes and estate planning: Life (re)begins (at the hop)** by Matthew Burgess")
,%20paper,%20rock%20%E2%80%93%20Family%20Law%20v%20Bankruptcy%20Act%20(part%20III)%20by%20Matthew%20Burgess.jpg "View Legal blog - Scissors (man)**, paper, rock – Family Law v Bankruptcy Act (part III) by Matthew Burgess")
%20can%E2%80%99t%20shape%20upby%20Matthew%20Burgess.jpg "View Legal blog - Scissors, paper, rock – Family Law v Bankruptcy Act (part II): can’t shape up**by Matthew Burgess")