Simpson Western recently produced this article which will help answer many of your questions about things to consider in the event of a relationship break up.
Many people who have endured a relationship break up know it can be exhausting – mentally, emotionally, physically and, ultimately, financially. You could be forgiven, then, for thinking the priority is to get the agreements signed or Court Orders made. However, what is often overlooked as one of the first steps, and yet so imperative, in protecting your assets, your new spouse or partner, and children in the future. That first step is updating your will and enduring powers of attorney (EPA) to reflect your new relationship status.
Why update your will?
There are some very good reasons why you should update your will if you separate, including:
- Your ex-spouse/partner may still benefit under your will as it continues to be effective after you separate unless:
- You remarry or form a civil union;
- You make a new will; or
- The court orders otherwise.
- If your marriage or civil union hasn’t been formally dissolved, everything remains the same (which is why you need to change your will after separation). If your marriage or civil union has been dissolved, however, your ex-spouse/partner can neither be an executor nor a beneficiary.
Those people whom you would like to benefit (such as your new spouse or partner, children, or grandchildren) may have to share your estate with your ex-spouse/partner unless they can persuade them to waive their entitlement under your will by entering a deed of family arrangement. If your ex- spouse/partner refuses to waive their entitlement then your family would need to resort to a claim in the Family Court for additional provision from your estate, such as:
- A claim by your new spouse/partner, children, or grandchildren under the Family Protection Act 1955, or
- A claim by your new spouse/partner under the Property (Relationships) Act 1976. None of the above options will be easy, and all of them could be lengthy, litigious, and expensive. If you wish to ensure those people you would like to benefit when you die do in fact benefit, your first task should be to instruct your lawyer to make a new will that reflects your newly separated situation.
Appointing a testamentary guardian?
If you separate, you can ensure someone you trust will look after your children’s best interests and welfare after you die by appointing a ‘testamentary guardian’ in your will. Your testamentary guardian will have the power to make guardianship decisions about your children.
This is particularly important if any other legal guardians (such as your children's other parent or existing court-appointed guardians) are not so suitable.
Appointing a testamentary guardian gives that guardian the right to apply for day-to-day care, it does not necessarily mean they will have the day-to-day care of your children after you die. However, if the testamentary guardian was the primary caregiver prior to your death, and it is not in the children's best interests and welfare to be placed in the care of any other legal guardians, then the court may well grant the testamentary guardian day-to-day care.
A testamentary guardian should be someone you consider a good role model for your children. That person should be in the best position, financially and emotionally, to help care for them, be in good health and be able to ensure continuity of care for your children so they are not uplifted from their education, social group, or community. Make sure you talk with your proposed guardian to ensure they can tick all these boxes before making this appointment in your will.
Why update your EPA?
If you appointed your ex-spouse/partner as your attorney in respect of EPAs for personal care and welfare and/or property, this is also not automatically revoked when you separate. It’s a similar situation as overlooking making a new will when you separate – retaining an out-of-date EPA could create a very awkward family reunion if your ex-spouse/partner remains responsible for making decisions about your personal matters (which doesn’t include decisions about your children) if you lose mental capacity.
If you do not revoke your EPA after you separate, and subsequently lose mental capacity, unless the appointment of your ex-spouse/partner ceases (because your ex dies, becomes mentally incapable, bankrupt, or files a notice in court under the Protection of Personal and Property Rights Act 1988), the only option to remove an attorney is for your family to apply to the Family Court.
The better option? Revoke your EPAs and make new ones with your lawyer at the same time you update your will.
Do it sooner rather than later
Understandably, the idea of more legalities after a separation can be daunting and easily pushed to the back of your mind. Ignoring these issues may be easy to justify after the rigours of a separation. Ultimately, however, by not being thorough post-separation, which includes re-arranging your estate planning, you are leaving a potentially complex and expensive legal headache behind for your loved ones and much uncertainty for your children.
Get onto this sooner rather than later – the risk isn’t worth it.
What about insurance?
The benefits from insurance policies are paid to the owner(s) of those policies. Joint ownership, when couples are together, makes sense because when a claim is triggered, through incapacity or death, the other joint policyowner can claim the proceeds straight away. This puts the dollar benefit amount into the hands of the beneficiaries when they need it.
If a relationship changes, failure to alter or separate the ownership of policies can cause problems. Claim payment can be made to an unintended beneficiary.
As an example, we often find that new clients who have separated and formed a new relationship will have policies still jointly owned by their previous partner. In the event of a claim the insurance proceeds will go to the previous partner. If this is not intended, it needs to be addressed. If the relationship with the ex-partner is amicable then a simple transfer of ownership can be arranged. If not, then a new insurance policy is often the most expeditious way of separating insurance coverage.
Discussing the purpose that you would want an insurance benefit to fulfil and framing it appropriately are cornerstones to making sure things run smoothly if you are not around or are incapacitated. Making sure you have the correct ownership is stage one. Many insurance policies allow for varying ownership of benefits.
If your circumstances have changed talk to your financial adviser (who may also advise you to talk to your lawyer) and seek advice on what a good possible policy pay out and ownership structure looks like going forward. This structure could change several times during a policy’s, and your, lifetime so regular reviews with your adviser are best practice.