Death is not the end (... for a former spouse when somebody else takes their place**)

Following recent posts, the decision in Scott v Scott [2009] NSWSC 567 is a relevant case to be aware of in the context of the prospects of a former spouse seeking to challenge the deceased estate of their former spouse.

Relevantly the court held the following key principles are applicable, namely:

1. In most cases the achievement of a final property settlement in the Family Court would be seen by the parties, in current social circumstances, as terminating any moral claim of a former spouse to provision in the will of the other.
2. This said, public policy, must adapt itself to legislation that creates a specific entitlement for a former spouse to claim. These rules in essence contemplate there will be cases where such a claim will succeed, notwithstanding the public policy of finality of property settlement.
3. A former spouse who has been accorded all rights under a property settlement and does not have any continuing entitlement to maintenance, is not generally regarded as a natural object of testamentary recognition.
4. Even if the former spouses have not divorced or entered into a property settlement, there is the threshold question as to what might be adequate provision in all the circumstances. Those circumstances must take into account both the fact of separation from the deceased and the fact that, as between themselves, a division of their assets is likely to have already been effected.
5. Therefore as long as the deceased takes steps to effect an amicable and relatively fair division of all assets this will normally terminate any moral claim the deceased might have had to the former spouse.

One iteration on the above comments however is that even where an ex-spouse is not receiving maintenance (which may give them a right to challenge the deceased estate) they may be ‘entitled’ to be receiving maintenance.

If this is the case then the former spouse may fall within the category of persons entitled to challenge (under the extended definition of 'spouse').

In this regard, in the case of Ryan v Harrison [2020] QSC 267 it was confirmed:

1. 'Entitlement' must be an entitlement enforceable either by contract or court order (see Re Lack [1981] Qd R 112).
2. The entitlement will ordinarily need to involve a rightful claim or title to it; that is an established claim as opposed merely to an asserted or alleged one (see Krause v Sinclair [1983] 1 VR 73 and Sarich v Erceg [1984] WAR 11).
3. Where there is no order of the family court requiring continuing maintenance at the time of death, a former spouse must prove there was a contract or agreement between them and the deceased that created an entitlement to be receiving maintenance.

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 the post today is riffed from the David Bowie song ’Blackstar’. View here:

Like magic** - business valuations and family court cases

Where a business owned and operated by a couple forms part of the assets to be divided under a property settlement, there are a range of potential issues that can arise.

The case of Ledarn & Ledarn [2013] FamCA 858 provides an interesting insight into the types of concepts that the family court will consider.

The case involved a business that the wife was the general manager of and the husband was the original designer of the core product.

Both parties wanted sole control of the business as part of the matrimonial settlement, and the wife ultimately succeeded.

Some of the key aspects of the decision included the following:

1. Although there was an independent valuation suggesting the business was worth $8 million, the wife had argued that it was worth '$10 million' to her.
2. While generally, the value attributed to a business will be that which an arm’s length purchaser will pay, the family court can instead accept a value that one of the parties to the relationship subscribes to it.
3. The court also took into account the evidence that seemed to suggest that the wife had a much better understanding of the nuances of the business and how it would best operate in allowing her to take full control.
4. The wife’s request that there be a 5-year non-compete restraint imposed on the husband was however rejected on the basis that given she had significant business acumen, in addition to all of the assets of the business, the prospects of the husband successfully commencing a competing offering were at best remote.

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 Coldplay song 'Magic'.

View here:

Divorce and Estate Planning

Image credit: Public Domain Pictures

The impact of a relationship breakdown on any estate plan must be considered carefully.

While in many jurisdictions, a formal divorce leads to a partial revocation of an existing will, if the couple has only separated, or alternatively, if they have only had a property settlement, neither of these events impact on pre-existing wills.

Generally speaking, before a divorce takes place, there must be complete separation for 12 months following a breakdown of the relationship.  On that basis, the conservative recommendation would be to always update wills and related documentation as soon as permanent separation takes place.

In most instances, particularly where the estate planning documents have been implemented in recent years, this process need not be time consuming nor expensive.

In an upcoming post, we will look at a client situation that arose for an adviser recently in this area.

Until next week.

Family courts' power to adjust inheritance rights

With thanks to co View Legal director Tara Lucke, this week’s post looks at the widely publicised High Court judgment of Stanford v Stanford (2012) HCA 52 from the end of 2012 and the Family Courts’ powers to potentially displace the distribution of assets under an estate plan. A link to the full copy of the decision is as follows: http://www.austlii.edu.au/au/cases/cth/HCA/2012/52.html

As many will be aware the brief facts were that Mr and Mrs Stanford had no children together, although both had children from previous relationships. The Stanford’s had both crafted their estate plans to provide for their respective children, without making provision for each other, other than a life tenancy in the family home. The house was owned solely in the name of Mr Stanford (he had bought it before the marriage), although it had been lived in by the couple for over 40 years.

Critically, Mrs Stanford appointed her children, not Mr Stanford, under her guardian and attorney documents.

Due to ill health and mental incapacity, Mrs Stanford was moved into residential care. Despite no suggestion that the couple were anything other than happily married, on her mother’s incapacity Mrs Stanford's daughter initiated proceedings in the Family Court (as Mrs Stanford's legal guardian) seeking orders for equal division of the marital property (the main asset was the family home) between Mr and Mrs Stanford.

The initial Judge ordered that Mr Stanford pay a fixed sum of approximately half the value of the marital property to Mrs Stanford, which payment would have effectively passed directly to her guardians. To fund the payment the family home would have needed to be sold, forcing Mr Stanford to leave the house.

Mr Stanford appealed the decision, however Mrs Stanford passed away before judgment was delivered by the Court of Appeal. The Court of Appeal ultimately decided that Mrs Stanford's legal personal representatives should receive the fixed sum upon the death of Mr Stanford. This decision effectively altered the distribution of Mr Stanford's estate (which Mrs Stanford had agreed with while she had capacity) under his will as the house (following his wife’s death) would have otherwise passed to his children.

The decision of the Court of Appeal was ultimately set aside on appeal to the High Court, on the basis that the order was not just and equitable. However, importantly, the High Court confirmed that the death of a party to a marriage ‘does not transform the nature of the claim (for example, into a claim by the beneficiaries of the wife’s estate)’.

In other words, the right of a guardian or attorney to commence property settlement proceedings was effectively confirmed, even where (as here) they would have no entitlement to challenge the estate of their step father.

The decision highlights the risks that in some cases, particularly in relation to blended families, estate distributions may be fundamentally altered by way of ‘pre-emptive’ proceedings through the family law court.

Until next week.

Deferral of property settlements

This week’s post looks at a recent Family Court case - Pratt [2012] FamCAFC 81 (13 June 2012).  A link to the full copy of the decision is as follows: http://www.austlii.edu.au/au/cases/cth/FamCAFC/2012/81.html

The husband and wife were graziers.  The main issue in dispute was that a valuer had confirmed there had been a $10 million decrease in value of their two cattle stations over recent years as a result of exceptional circumstances (such as the restrictions on live cattle export).  The parties agreed that as a result, the bank debt over the properties substantially exceeded the value of the land.

The wife sought a three year adjournment under the Family Law Act to enable a ‘just and equitable property settlement’, on the basis of the valuer’s statement that the land should increase in value substantially over the next two years, as market conditions return to normal. 

The husband opposed the delay on the basis that the parties’ debts exceeded their assets and he could not meet the interest owed to the bank.  The adjournment was originally granted but appealed by the husband.

Normally an adjournment is only available where a ‘significant change’ in financial circumstances is likely and the delay will probably do justice, more so than an immediate division of property.

Ultimately, the Court accepted the husband’s argument and ordered that the property settlement be finalised immediately.  A key aspect of the decision to deny an adjournment was the failure in the original decision to factor in the cost of maintaining an increasing debt through interest on the loan facility and the ongoing costs of running the properties.

In other words, it was held that in order to delay a property settlement, all relevant financial issues must be considered.  It is not sufficient for there simply to be a ‘significant change’ in the gross value of the assets.

Until next week.

Assets of a family trust not necessarily at risk on a matrimonial breakdown

With thanks to team member James Ford, the post this week focuses on another recent decision of the Family Court concerning trusts.

The case is Morton V Morton [2012] FamCA 30. If you would like a copy of the case please email me.

Essentially, the case confirms that, where appropriately structured, the assets of a family trust will not be considered matrimonial property on a relationship breakdown.

Until next week.

Contribution assessments in family law cases

The posts for the last 2 weeks have focused on the decision from the end of 2011 of Harris.

One final aspect of the case that it is worth highlighting involved the comments made by the Court about the ‘contribution’ that the parties to the marriage, and their respective families, made to growing the asset base during the course of the relationship.

As many will be aware, once the court has determined the property that satisfies the definition of being an ‘asset’ of the marriage and then in turn the property that is a ‘resource’, there is a need to determine the contribution the parties have made to creating the wealth.

In the Harris case, the appeal court expressly directed that in the retrial (which is yet to take place) the judge must be careful to ensure that adequate weight is given to the husband and his parents in terms of building up the value of the business that was owned by the family trust at the centre of the dispute.

This direction was as a result of the initial trial judge’s decision to simply ignore the contribution that had been made by the husband and his parents over many years, both before the marriage and during the course of it.

Until next week.

Trust distributions 101

Last week’s post touched on the Family Court decision from the end of 2011 concerning the way in which a family trust was treated as part of a matrimonial settlement.

One other aspect of the case that is worth mentioning involved the conclusion by the Court about the, purported, use of a corporate beneficiary.

In particular a ‘bucket company’ was set up some years after the initial establishment of the trust. The evidence that seemed to be accepted by the Court was that the company was established for ‘tax minimisation or reduction purposes’.

Unfortunately, to the extent that a disgruntled third party (including the Tax Office) may wish to challenge the distributions, the company was not in fact a beneficiary of the trust.

While the ‘wrongful’ distributions (in the words of the Court) were not explored further in the context of this family law case, the comments highlight the theme of many earlier posts – that is in almost every area where structures are used (whether they be trusts, companies or super funds) it is critical that someone takes responsibility for reading the establishment documents before any step is taken.

Until next week.

Another family law case on trusts

Posts made in October 2011 focused on a high profile family law case involving a family trust (Keach).

In that case, the assets of a family trust were essentially protected on a property settlement.

Towards the end of last year, the case Harris v Harris (for a full copy of the decision follow this link - http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FamCAFC/2011/245.html) provided further context to the general attitude of the Family Court in relation to traditional trust structures.

The outcomes of both cases can be contrasted with the outcomes in cases involving arrangements that the Court believes are unconscionably designed to hide assets (for example, the case of the Kennon v Spry, also featured in the posts during the latter half of 2011).

In brief terms, the Harris case involved a trust established by the husband’s father.
At the relevant time, the appointor of the trust was the husband’s mother and the controllers of the trustee company were the husband’s mother, a son from a previous relationship and a friend.

The main asset of the trust was a business which it was accepted was run on a day-to-day basis by the husband and wife.

The main beneficiaries of the trust were the husband’s parents and their children (i.e. the husband and his siblings).

Distributions from the trust had been amongst the entire family group (including the wife), although the distributions to the wife ceased on separation with the husband.

In summary, the Court held:

1. The trust and its assets were not an asset of the marriage.
2. At most, the trust should be considered a significant financial resource for the husband.
3. If a party to the marriage is not directly the appointor or in control of the trustee, then they do not have direct control.
4. In order for there to be indirect control by a beneficiary, there must effectively be a situation where someone who has direct control is the mere puppet of the beneficiary.
5. In order to demonstrate indirect control (e.g. through a ‘puppet’ scenario), there must be clear evidence to support the argument and merely reviewing a history of trust distributions of itself will not be sufficient.

Until next week.