Financial Disclosure within Family Law - PART 2

In this series of the Doolan Wagner Family Lawyers newsletter - "Family Law News", we are addressing the broader issue of financial disclosure within family law. This article, Part 2, discusses how family law and succession law interact with one another in terms of the impact on a couple’s divorce and how property is classified when it is an inheritance. This will lead us to Part 3 of our series next week, which will look in detail at the financial disclosure obligations in the context of divorce, which arise when one party becomes entitled to receive an inheritance. But for now, let's examine family law and succession law.

The intersection between family law and succession law is complex, with many confusing the two when it comes to finding a lawyer to act for them. These areas of law are distinct and yet they are also closely linked when it comes to property settlements after separation and who is considered an ‘eligible person’ to make a claim on an estate. A key difference, however, is their jurisdiction. Succession law is dealt with by the states, which in NSW means within the Supreme Court of New South Wales. Family law is dealt with federally in the Federal Circuit and Family Court of Australia (‘the Court’).

While it is beyond the scope of this article to discuss the relationship between inheritances and family law property settlements, the comprehensive article titled “What you need to know about Inheritances and Family Law Property Settlements” authored by Oliver Lacey and Stuart Colderick deliberates the main issues in further depth. 

Administration of Estates

It is necessary to outline the basics of estate administration before an understanding of the intersection between family law and succession law (estate law) can be understood. A will is a legal document that gives instructions as to who a person’s estate is going to, who their executor is and if applicable, who is to care for their minor children. When a person’s estate is of a sufficient size, it is generally required that a Grant of Probate is made. In New South Wales, Probate is an order of the Supreme Court of New South Wales, confirming a will as valid and granting the executor(s) of the estate the power to deal with and distribute the estate in accordance with the will. Of note here is the fact that after Probate is granted, the Probate and Administration Act 1898 (NSW) states that the will of a deceased becomes a public record, allowing anyone the ability to access the document for a fee.

An application for Probate comprises of the Original Will, an Affidavit of Executor(s) and the Inventory of Property. The Inventory of Property is essential because it details all of the property owned by the deceased as at the date of their death and forms a part of the sealed Grant of Probate. An executor then has a duty to keep “proper accounts” and any person or institution holding assets of an estate are entitled to verify that the asset was disclosed in the Inventory. It is also of note that there does not need to be a will for a Grant to be made. Where there either is no will of the deceased, or where their will is invalid, a Grant of Letters of Administration can be made.

The process in applying for Letters of Administration is similar to the process of applying for Probate. However, it can be more costly due to the uncertainty that the lack of a valid will creates. In a Grant of Letters of Administration, the executors are called administrators, and if successfully filed, the Grant gives the administrators of the estate the same powers and duties as executors. It is usually the person who likely would have inherited under a will or their next of kin that applies for a Grant of Letters of Administration. This may include the spouse or a child of the deceased. Succession law is an intricate area of law, with the basics of estate administration discussed here only touching the surface of what complexities lie underneath.

Classifications of ‘Eligible Persons’ and the Effect of Divorce

Succession law or estate planning law deals with how a person’s property is dealt with after their passing. It also allows individuals to make instructions as to how they will be cared for when they have lost the capacity to make their own decisions, or are unable to make decisions due to geographic difficulties. Often, people make a will to instruct how their property will be dealt with after their death, with an executor being the person to administer the estate and beneficiaries to be the persons who the assets are given to. Conversely, family law deals with relationships and their breakdowns while parties are still alive, with financial provision and parenting arrangements both areas that are dealt with.

In succession law there are several duties placed upon executors and similarly, a number of rights afforded to beneficiaries. However, there are also ‘eligible persons’ who can make a claim upon an estate. This includes if you are an ex-spouse of the deceased. Certain documentation called a “Deed of Release” can address this issue. However, many do not think or want to formalise an agreement which effectively prevents them from making a claim on their ex-spouse’s estate and from taking a ‘second bite of the cherry’ so to speak. This makes issues of disclosure in estate administration relevant to family law property settlements.

Interestingly, under section thirteen (13) of the Succession Act, the divorce or annulment of a marriage immediately revokes a person’s immediate entitlement to benefit from their ex-spouse’s estate. In other words, if a couple were to divorce but failed to change their wills and one passed away, the surviving spouse would have their beneficial entitlement to their ex-spouse’s estate revoked unless the will has a contrary intention. The key point here is, if parties were to divorce and then make new wills in contemplation of their divorce, the beneficial interest provided to the ex-spouse would remain. This highlights how essential it is to get the appropriate legal advice upon your relationship breakdown, as the impact of separation can have far-reaching and often unintended consequences.

Property Classification in Family Law

In family law, a key issue for the Court has been to classify whether an inheritance under a will is considered to be the property of a party or a financial resource. The short answer to this is that it can be either. A beneficiary to a will has a right to receive their inheritance after the testator dies, and once received it is their property. However, depending on whether they received their inheritance before, during or after the separation, and whether it was known that they had an inheritance in the near or far future, will change how the Court treats the ‘asset’. For an asset to be included in the matrimonial pool it has to be in existence at the time of the settlement or final hearing. This does not necessarily preclude the relevance of prospective inheritances but changes how they are treated by the Court. In practice, delineating the difference between the two can be a tricky exercise.

While in most cases inheritances received during the relationship have been considered by the Court to be property, in some circumstances including discretionary testamentary trusts, the Court has considered the inheritance to be a financial resource. Under section 79 of the Family Law Act 1975 (Cth), property has a wide meaning and is taken to include any property that either party to the relationship is entitled, whether in possession or reversion. This could include assets like the family home, real estate, jewellery and cash in the bank. A financial resource is different from property because it denotes a future financial benefit that could be used to generate income. As such, the Court needs to take financial resources into consideration even though they are not technically a part of the asset pool of the parties at the time of settlement or final hearing. The cases discussed below demonstrate the difficulties that can arise in trying to classify inheritances.

In the case of Miller & Miller [2014] FAMCA 591, the Husband received his inheritance three (3) years prior to the end of a ten (10) year marriage, and the Court considered it to be property and his financial contribution to the matrimonial pool of assets. Similarly in Holland & Holland [2017] FAMCACFC 166, on Appeal the Court considered the inheritance received by the Husband during their relationship to be his property and not a financial resource, regardless of whether it was legal or equitable in nature.

Contrastingly, in the case of Bernard & Bernard [2019] FamCA 421, the Court considered the Husband’s interest in a discretionary testamentary trust established under his late father’s will to be a financial resource. This was because even though the Husband was the primary beneficiary of the trust, it was his late father who was the settlor of the trust and the Husband as a mere beneficiary had no more than a right to due administration of the trust. As the Husband was not, in effect, in control of the trust, because the property was not acquired by the Husband before or during his marriage, and as the trusts were established from assets of his late father, the inheritance was considered to be a financial resource.

Conclusion

These cases articulate how the Court considers a multitude of factors when deciding property settlements, and there is no clear-cut answer for each individual circumstance. They also show how complex the interaction between family law and succession law can be.

Key takeout: It is important to understand the rights and duties of all parties in both succession and family law proceedings. Obtaining proper legal advice can prevent many unintended consequences created by and through the complexities of the interaction between these areas of law.

In our next issue of "Family Law News", we continue our Three Part Series on matters specifically related to Financial Disclosure. Part 3 looks at the additional financial disclosure obligations when there is an anticipation of receiving and/or you are eligible to receive an inheritance.

At Doolan Wagner Family Lawyers we specialise in complex family law matters and are conveniently located in St Leonards, on Sydney’s North Shore. We have a team of accredited and experienced family lawyers available to help guide you through the emotional and financial challenges of separation and divorce, no matter your circumstances.

Doolan Wagner Family Lawyers centralises its practice on Family Law. Whether you are looking for a collaborative family lawyer, assistance with child custody arrangements, a property settlement, divorce and/or separation services, parenting coordination services, expertise for a divorce later in life or need quality representation in court; we will address your matter with the highest compassion and professionalism.

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Disclaimer: These newsletters are only intended as an overview or comment on current issues that may interest you and are not legal advice. If there are any matters that you would like us to advise you on, then please contact us on: (02) 9437 0010.