EPAs and conflicts of interest

With the aging population, conflicts of interest arising particularly in relation to the use of an enduring power of attorney (EPA) are becoming far more prevalent.

Previous posts have looked at cases like Stanford. Recently we had a client situation that underlined how critical it is to include a conflict of interest provision in an EPA. This style of provision is not standard in any government form and indeed many lawyers do not choose to include such a provision.

The situation the client faced was as follows:

1. The main asset in the estate was a family home which was owned as joint tenants. 
2. The husband lacked capacity due to advanced dementia, although was otherwise in good health. 
3. Our client (the wife) wanted to include testamentary discretionary trusts under her will to provide for the children of the relationship. 
4. The husband’s will was a very basic document and did not allow for testamentary discretionary trusts. 
5. To ensure that half the value of the house would pass into an appropriate structure if the wife predeceased the husband she was wanting to rely on her appointment as the husband’s EPA to sever the joint tenancy (for a summary of the distinction between owning assets as joint tenants and tenants in common see http://mwbmcr.blogspot.com/2010/02/what-exactly-does-jointly-mean.html). 
6. Due to an appropriately crafted conflict of interest clause in the EPA, the wife was able to quickly and easily implement the severance and avoid some of the more complex solutions that might also have been available such as the unilateral severance of the tenancy or applying for a court ordered will (the court ordered will process is featured in previous posts: http://mwbmcr.blogspot.com/2013/08/court-drafted-wills.html and http://mwbmcr.blogspot.com.ar/2013/09/using-court-drafted-wills-to-achieve.html). 

Until next week.

Image credit: Schnaars cc

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.

Further comments on assets protected by a family trust on marriage breakdown

Further to last week’s post, some feedback was received about other aspects of the decision mentioned (Keach & Keach).

To provide some more context to the main conclusion of the case mentioned last week, it is worth noting that:

1. The relevant trust was established by the father of the divorcing husband.

2. The father had all practical control over the trust as well as legal control.

3. While the main asset of the trust (being a home that the husband and wife were living in) was allegedly used by the husband 'as if it were his own', this did not change the legal ownership position.

4. In order for an arrangement to be a sham (and therefore, for example, for the trust’s ownership to be ignored), it must be shown that all relevant parties had the common intention to mislead others.

5. Even if the husband was conducting himself as if he were the owner, unless it could have been shown that the husband’s father intended the arrangement to be a sham, then there was no access to the assets of the trust.

6. Here the evidence was in fact the opposite – i.e. the husband’s father deliberately structured the arrangements to ensure that he retained control and direction of the trust. On this basis, the assets of the trust could not be considered as assets of the marriage.

Until next week.

Family law case excludes assets owned by a family trust

As mentioned in last week’s post, a family law case from earlier this year involving a family trust has received an amount of attention given the decision seems somewhat at odds with the High Court’s decision in Spry.

The more recent case (named Keach & Keach and Ors [2011] FamCA 192 – (if you would like a copy of the case please email me) focused on a family trust that the father of the divorcing husband had established.

The father admitted that among other things, one reason for setting up the trust was to keep the assets as far away from the reach of the family court as possible.

The divorcing wife argued that the assets of the trust should be available to her on a property settlement as her former husband effectively treated them as his own.

The court held that the assets should be ignored on the property settlement. Essentially, it was held the only time that the legal documents and arrangements could be ignored was where they were a sham or a 'mere puppet'. In all other instances, the family court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.

Until next week.

Spry - one year on

Undoubtedly, the highest profile family law case (at least involving trusts from 2010) was the Spry case.

While the actual scenario was somewhat unique and obviously the decision became one of the highest profiled decisions issued by the High Court in this space in recent years, the actual implications of the case may not in fact be as far reaching as first thought.

In particular, what many advisers in this area are seeing is that a number of the aspects of the decision can be explained by the particularly aggressive and arguably misleading approach that the husband took in relation to attempting to remove assets from the pool that could be distributed to his former wife.

Unless something else comes up during the week, next post I will summarise a recent family law decision that further confirms that the Spry decision may not be as concerning as many commentators first thought.

Until next week.

Interdependency relationships – further examples

Following on from last week’s post, some comments were received in relation to the lack of cases in this relatively new area of law.

Interestingly, the superannuation legislation (for those particularly interested, the actual regulation is 1.04AAAA) sets out a number of tests in relation to whether a relationship between two people amounts to an interdependency relationship.

In summary, the tests include:

(a) the duration of the relationship;

(b) whether or not a sexual relationship exists;

(c) the ownership, use and acquisition of property;

(d) the degree of mutual commitment to a shared life;

(e) the care and support of children;

(f) the reputation and public aspects of the relationship;

(g) the degree of emotional support;

(h) the extent to which the relationship is one of mere convenience; and

(i) any evidence suggesting that the parties intend the relationship to be permanent.

A link the above definition is as follows:
http://www.austlii.edu.au/au/legis/cth/consol_reg/sir1994582/s1.04aaaa.html

Many of these themes are similar to the definition of what a de facto relationship is, which were summarised in a post a few weeks ago.

Due to the September holidays, the next post will be in a couple of weeks time.

What is an ‘interdependency relationship’?

Following on from last week’s post, one issue that was raised with me related to the concept of an 'interdependency relationship' under the superannuation rules.

Again, for those who have not had cause to look at it recently, this definition is worth reviewing closely and an extract of it is included below.

Two persons (whether or not related by family) have an interdependency relationship under this section if:

(a) they have a close personal relationship; and
(b) they live together; and
(c) one or each of them provides the other with financial support; and
(d) one or each of them provides the other with domestic support and personal care.

In addition, two persons (whether or not related by family) also have an interdependency relationship under this section if:

1. they have a close personal relationship; and
2. they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (a), (b), (c) and (d); and
3. the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability.

A link the above definition is as follows:

http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s302.200.html

Until next week.

Being a 'kept’ woman (or man) may not be a de facto relationship

Following last week's post, I was reminded of a case from earlier in 2011 that involved a lady who had been a part of a secret intimate relationship with a married family man for 17 years.

According to her evidence, she and the man involved 'spent time together at various times in various places, had a sexual relationship, and expressed love and affection for each other'. The argument being that this was a 'de facto relationship' within the meaning of section 4AA of the Family Law Act (which was summarised in an earlier post).

The man denied 'any such relationship’, and instead claimed it was simply 'an affair' and the lady was a 'kept woman’. Both parties agreed that they travelled overseas together and the man paid the lady $24,000 to help her buy a home and $2,000 monthly, increasing progressively to $3,000 a month.

While the court rejected the man’s argument that 'exclusivity' was necessary for a de facto relationship to exist, the facts here did not support the lady’s argument that they were de factos.

The quote that best captured the decision here was as follows:

“the key to that definition (i.e. de facto) is the manifestation of a relationship where both the parties have so merged their lives that they were, for all practical purposes 'living together' as a couple on a genuine domestic basis. It is the manifestation of 'coupledom' which involves the merger of two lives as just described, that is the core of a de facto relationship as defined and to which each of the statutory factors (and others that want to apply to a particular relationship) are directed”.

Until next week.

De facto relationships - further examples

Further to last week’s post, the list below sets out some of the specific circumstances that are taken into account by the courts to determine whether a relationship does amount to a de facto relationship.

Circumstances of the relationship taken into consideration include any or all of the following:

(a) the duration of the relationship;
(b) the nature and extent of their common residence;
(c) whether a sexual relationship exists;
(d) the degree of financial dependence or interdependence, and any arrangements for financial support, between them;
(e) the ownership, use and acquisition of their property;
(f) the degree of mutual commitment to a shared life;
(g) whether the relationship is or was registered under a prescribed law of a State or Territory as a prescribed kind of relationship;
(h) the care and support of children; and
(i) the reputation and public aspects of the relationship.

A link to the above definition is as follows:
http://www.austlii.edu.au/au/legis/cth/consol_act/fla1975114/s4aa.html

Until next week.

What is a de facto?

Following on from last week’s post, I thought it would be useful to also summarise the definition of 'de facto'.

This particular definition is taken from the Family Law Act (Section 4AA).

In summary, a person will be in a de facto relationship with another person, if:

(a) the persons are not legally married to each other; and

(b) the persons are not related by family (see subsection (6)); and

(c) having regard to all the circumstances of their relationship, they have a
relationship as a couple living together on a genuine domestic basis.

A link to the above definition is - http://www.austlii.edu.au/au/legis/cth/consol_act/fla1975114/s4aa.html

Until next week.

What is a spouse?

The issue that what kind of relationship satisfies the definition of a 'spouse' has been coming up increasingly regularly.

The Tax Act sets out one of the most used definitions in this regard and I thought it useful this week to extract that definition in its entirety, given that it has been amended relatively recently.

A "spouse" of an individual includes:

(a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a State law or Territory law prescribed for the purposes of section 22B of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

(b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

Until next week.