Separation, divorce and death: estate planning blind spots
Separation and divorce often bring emotional and financial challenges, but one area that is frequently overlooked is estate planning.
In recent times, we’ve seen several cases where a party to a separation has died partway through the process, and without updating their succession planning documents. The result: assets passing back to the very person they were separating from.
In this update, we explore the risks of separation,divorce and estate planning, and some practical steps to manage them.
Separation, divorce and estate planning
Divorce has the effect of revoking the terms of a Will that gifts assets to the divorced spouse or appoint them to key roles (such as executor).
Separation, however, does not have the same outcome. The terms of the Will continue until the divorce is finalised, regardless of the length of the separation.
What about other documents?
Many other succession planning documents are not automatically revoked by separation, let alone divorce. These include:
- Incapacity documents (such as enduring powers of attorney), which generally continue to operate, potentially leaving a separated spouse with the power to make financial and medical decisions.
- Superannuation death benefit nominations, which will in most cases continue to operate (subject to the terms of the superannuation fund deed)
- Trust control documents which appoint successor appointors or guardians who often have power to change the trustee or regulate their decisions and will also continue to operate.
- Life insurance nominations, which also usually continue to operate unless changes (subject to the terms of the policy).
The net result? Control and benefits may end up back with the very person you’ve separated from.
How to avoid this
When people are going through family law separations and property settlements, it is understandable they are focused on the family law aspects. But keeping the succession planning documents up to date is critical.
The best approach is to review and update all succession planning documents as soon as possible. Many people choose to complete a ‘holding’ set of documents to make sure there are no unintended outcomes while they are working through their family law issues. These can be reviewed and updated again if needed once the family law matters are finalised.
A thorough review should include:
- your Will,
- any incapacity documents,
- superannuation death benefit nominations,
- life insurance nominations, and
- any trust control documents.
If you are unsure how your estate would be handled during a separation, it’s best to speak to a lawyer or adviser. A simple review now can help ensure that your assets don’t unintentionally end up back in the hands of your former spouse.
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