Tuesday, February 22, 2022

Divorce** and enduring powers of attorney

Previous posts have considered probably the most high profile case involving a divorce using an enduring power of attorney, that being the decision in Stanford.

The case of McKenzie & McKenzie [2013] FCCA 1013 provides another similar example.

A summary of the facts is as follows:
  1. The wife separated from the husband, and around six months later, there was evidence to suggest that she began preparing documentation to apply for a divorce;
  2. Around nine months after the initial separation, the wife underwent surgery that ultimately resulted in her losing capacity;
  3. Following the loss of capacity, the wife's mother was appointed her legal guardian;
  4. Via her role as legal guardian, the wife's mother formally finalised an application for divorce;
  5. The court allowed the divorce proceedings to proceed on the application of the mother on the basis that the relationship between her daughter and former son-in-law had broken down irretrievably before the loss of capacity; and
  6. The fact that the daughter had not been separated from the husband for 12 months (which is normally required) before she lost capacity was not held to be relevant in the circumstances.
A similar conclusion was reached in the case of Price v Underwood (2009) FLC 93-408 where an urgent application by an attorney for a divorce to be granted (as it evolved, one day for the principal died), waiving the normal waiting period.

Mentioning cases such as Re an Incapable Person D [1983] 2 NSWLR 590, Pavey and Pavey (1976) FLC 90-051, Todd and Todd (No. 2) (1976) FLC 90-008 and Falk and Falk (1977) FLC 90-247, it was confirmed:
  1. an enduring attorney can make an application for divorce on behalf of a principal;
  2. any such application must be supported by evidence that the marriage has irretrievably broken down;
  3. the attorney also needs to be able to show that the principal had the requisite intention to bring the marriage to an end and had lived separately and apart from the spouse for 12 months prior to the filing of the application.
As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Nirvana song ‘Serve the servants’.

View hear (sic):

Tuesday, February 15, 2022

Buy-sell deeds: pricing to pay** the premium?

One issue that comes up regularly in the context of insurance funded buy-sell arrangements is who should be responsible for the payment of insurance policy premiums.

Depending on the policy ownership approach adopted and the underlying business structures, there are a range of alternatives, including:
  1. Each principal pays a premium on their own policy.
  2. All principals contribute a proportion of the total premiums for all policies, equal to their respective equity interests in the business.
  3. Each principal pays an exactly equal proportion of the total premiums based on the number of principals (regardless of their underlying equity interest).
  4. If there are only two principals, sometimes the approach will be that each principal pays premium for the other.
As previous posts have touched on, there are a myriad of tax consequences that can arise from each of the various alternatives.

Assuming that these tax consequences can be managed, generally the pragmatic approach is to apportion the total premiums payable for all policies in accordance with the equity interest of each principal.

While this will not necessarily be seen as fair by each principal in all scenarios, it does keep things relatively simple and also helps the principal's focus on what should be the overriding objective of any insurance funded buy-sell arrangement. That being, to facilitate a smooth transition of a business in a factual scenario where the prospects of a smooth transition otherwise occurring are unlikely.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Janes Addiction song ‘Price I Pay’.

View hear (sic):


Tuesday, February 8, 2022

Sometimes** the law matters: Binding nominations and wills

Today’s post looks at whether the superannuation death benefits can be regulated via a will.

This issue was considered by the Superannuation Complaints Tribunal (SCT) in D11-12/066 where the deceased failed to execute a binding death benefit notice (BDBN) or a non-binding nomination.

Instead, she executed a will which appointed her spouse, son and daughter as legal personal representatives (LPR) and left a specific bequest to her spouse.

The trustee of the fund was of the opinion that in the absence of a BDBN, the entire superannuation benefit had to be paid to the LPR of the deceased, to be distributed in accordance with the terms of the will.

The deceased’s spouse challenged this decision arguing that it was unfair and unreasonable given the deceased had left a specific bequest in her will to her. The spouse argued that this bequest constituted a death benefit direction.

The SCT found that the decision of the trustee to distribute the superannuation benefit to the deceased’s LPR was not unfair, unreasonable or contrary to law. The trustee’s decision was in accordance with the terms of the deed and the superannuation law and this, according to the SCT, was the correct decision.

The decision highlights the importance of standalone nominations and that it is unlikely a provision in a will can ever constitute a valid nomination.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, ‘Sometimes’ is a song by U2.